Investing in NPS, buying health insurance can help Sudarshan cut tax outgo

Chennai-based S. Sudarshan’s tax outgo is very low at 4% of his annual income. Although his company does not allow tweaking of the pay structure, Taxspanner estimates that he can lower his tax by almost 45% by minor changes and additional investments.

Sudarshan’s tax is low thanks to his home loan. Since the house has been given on rent, he pays tax on the rent earned but claims deduction for the entire Rs 2.08 lakh interest paid on the loan. This reduces his tax by almost Rs 35,000. Sudarshan’s employer does not allow changes in the pay structure. Still, he should get his special allowance (which is fully taxable) reduced and instead ask for 10% of his basic to be put in the NPS. This will reduce his tax by Rs 8,240.

The tax outgo can be reduced further by investing Rs 50,000 in the NPS under Sec 80CCD(1b). This will reduce his tax by Rs 10,300. However, NPS will lock up his money till he turns 60. Sudarshan does not have health insurance. Although he is covered by his employer’s group health plan, he should consider independently buying a floater plan that covers the entire family. If he pays a premium of Rs 30,000, his tax will come down by another Rs 6,180.

(By Sudhir Kaushik of Taxspanner.com)

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