How NPS and other perks can cut tax by 54%

Hyderabad-based software professional Vikas Kukreja pays low tax because his pay structure is fairly tax-friendly. However, he can bring it down further with some deft planning. TaxSpanner estimates that Kukreja can save more than Rs.30,000 in tax if some taxable allowances in his pay are replaced with tax-free perquisites, if his company offers him the NPS benefit, and he buys health insurance for his father.

Kukreja’s salary includes medical and transport allowances, both of which are taxable. He also gets children’s education allowance, but being single, he can’t claim exemption. These three taxable allowances should be replaced with reimbursement of telephone expenses and meal coupons. If he gets telephone allowance of Rs.1,000 and meal coupons worth Rs.2,000 per month, his annual tax will come down by about Rs.7,500. Leave travel allowance of Rs.50,000 will reduce his tax by another Rs.10,400.

Kukreja should also ask his company for the NPS benefit. Under Section 80CCD(2), up to 10% of the basic salary put in the NPS on behalf of the employee is tax-free. If his company puts Rs.3,981 (10% of his basic) in the NPS on his behalf every month, his tax will reduce by almost Rs.10,000. Kukreja already invests in the NPS on his own under Section 80CCD(1b), so he is aware of how it works and the asset allocation to follow.

Though covered by his company’s group medical insurance, Kukreja has bought health cover for himself. He should consider buying health insurance for his father as well. An additional annual premium of Rs.15,000 will reduce his tax by Rs.3,120.

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