How your salary perks, NPS investments can cut tax outgo by Rs 1 lakh

Delhi-based marketing manager Gurpreet Sethi pays a high tax because he doesn’t avail of all the deductions available to him. Taxspanner estimates that Sethi can reduce his tax by almost Rs.1 lakh if he opts for some tax-free perks and the NPS benefit offered by his company. He also needs to invest in the low-cost pension scheme on his own. Under Sec 80CCD(2), up to 10% of the basic salary put in NPS is tax deductible. Sethi’s company offers him the NPS benefit, but he hasn’t opted for it. “I find the compulsory annuity option in the NPS very restrictive,” he says. The compulsory annuity is indeed restrictive, but only applies to 40% of the corpus. He is free to use the balance 60% as he likes. If Sethi opts for the NPS benefit, his tax can reduce by almost Rs.36,000. Another Rs.15,600 can be saved if he invests Rs.50,000 in the scheme on his own under Section 80CCD(1b). At 38, he should allocate the maximum 75% to equity funds. He can also opt for athe Lifecycle Fund option where the allocation is determined by the age of the investor.

Sethi’s company gives him the option to choose from a basket of perks and allowances. He should opt for some tax free perks, such as newspaper bill reimbursements and LTA. If he gets Rs.1 lakh as LTA, it will save him Rs.31,000 in tax. A newspaper allowance of Rs.2,000 per month and meal coupons worth Rs.26,400 will further reduce his tax by Rs.16,000. Since he also works from home, Sethi should ask for higher telephone allowance to cover internet charges.

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