Tax optimiser: How Ranjan can save Rs 50,000 in tax via NPS

By Sudhir Kaushik of Taxspanner.com

Delhi-based doctor Ashish Ranjan pays a high tax even though his salary is quite tax friendly. Taxspanner estimates that Ranjan can reduce his tax by almost Rs 50,000 if he opts for the NPS benefit given by his company and buys medical insurance for himself and his family.

Saving for retirement is critical for Ranjan because his contribution to the Provident Fund is not too big. Ranjan invests in the NPS under Sec 80CCD(1b) but should increase this by opting for the NPS benefit under Section 80CCD(2d).


Up to 10% of the basic salary put in NPS is tax deductible. If his company puts Rs 10,846 (10% of his basic salary) in NPS every month, his tax will reduce by about Rs 40,600. But this will also reduce his monthly take-home pay by about Rs 7,500.

Income from employer

Income from other sources

Ranjan should opt for an aggressive allocation that allocates the maximum corpus to equity funds. Ranjan’s wife is a government employee and the family is fully covered for medical expenses. Even so, Ranjan should consider taking a critical illness cover for himself and the family. A premium of Rs 25,000 will reduce his tax by roughly Rs 7,800.

Tax-saving investments

Other deductions

Ashish Ranjan’s tax

He should also take sufficient life insurance cover. A term insurance cover of Rs 2 crore will cost him about Rs 20,000 a year. Another minor tax break is possible if he avoids bank deposits and switches to debt mutual funds. Gains from debt funds are taxed at a lower rate if the investment tenure exceeds three years.

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