MNC employee Jacob can cut tax by investing more in NPS, buying health insurance

Jacob’s MNC employer does not allow rejigging of the pay structure so there is very little scope for tax optmisation. Even so, Taxspanner estimates that the Hyderabad-based manager can reduce his tax liability by over Rs 25,000 if he puts more into NPS and buys health insurance for his family.

He should start by asking his company to put 10% of his basic pay in the NPS under Section 80CCD(2d). If Rs 50,000 is put in the NPS, his tax will reduce by Rs 10,300. The NPS can reduce his tax further if he puts Rs 50,000 in the scheme under Section80CCD(1b). This will cut his tax by another Rs 10,300. But though investing in the NPS will help cut tax, it will also reduce his monthly take home pay by Rs 3,300. He will also have to shell out roughly Rs 4,150 every month to save about Rs 860 in tax.

Jacob also needs to rejig his tax planning. He puts too much in VPF and PPF and has no equity exposure. Instead of VPF and PPF, he should start an SIP of Rs 5,000 in an ELSS fund. In the NPS, he should opt for the aggressive lifecycle fund which allocates 75% to equities till the age of 35.

If he buys health insurance cover for himself and his family (including senior citizen parents) for Rs 25,000, his tax will reduce by about Rs 5,150.

(By Sudhir Kaushik of Taxspanner.com)