Tax optimiser: Investing in tax inefficient bank fixed deposits is a big no for Kant

By Sudhir Kaushik of Taxspanner.com

Hyderabad-based software professional Kamal Kant pays a low tax because his salary structure is quite tax friendly. Even so, Taxspanner estimates that Kant can reduce his tax by almost Rs 50,000 if his company offers him some tax-free perks and the NPS benefit and he invests in the scheme on his own.

Income from employer

Income from other source

Kant should start by asking his company for the NPS benefit. Under Sec 80CCD(2), up to 10% of the basic put in NPS is tax free. If his company puts Rs 6,123 (10% of his basic pay) in the NPS every month, his annual tax will reduce by more than Rs 15,000. Another Rs 10,400 can be saved if he invests Rs 50,000 in the scheme on his own under Sec 80CCD(1b). At 35, Kant should put the maximum in equity funds.


Tax-saving investments

Next, he should ask his company for some tax-free perks. He already gets reimbursements of telephone and newspaper bills and food coupons. If he gets a conveyance allowance of Rs 60,000 (Rs 5,000 per month) and a gadget allowance of Rs 50,000 per year, his tax will reduce by roughly Rs 23,000. The gadget allowance has become critical in the work from home regime following the pandemic. Under Section 17(2), the employee is taxed for 10% of the value of the asset.

Kant has made some capital gains in the year, which will lead to a tax outgo. He will also be taxed for the interest on tax-saving fixed deposits he invested in 2-3 years ago. Kant should avoid tax inefficient fixed deposits. The PPF is a better option as it offers tax-free returns.

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