Tax optimiser: IT professional Saluja can save tax of Rs 65,000 by rejigging salary structure, NPS

By Sudhir Kaushik of Taxspanner.com

Bengaluru-based IT professional Kartik Saluja pays a high tax because his pay is not tax-friendly and he does not avail of all the deductions available to him. Taxspanner estimates that Saluja can save almost Rs 66,000 in tax if his salary structure is rejigged and he invests in the NPS.

Saluja should start by asking his company for the NPS benefit. Under Section 80CCD(2), up to 10% of the basic salary invested in the pension scheme is tax-free. If his company puts Rs 6,070 (10% of his basic salary) in the NPS every month, his annual tax will reduce by almost Rs 22,750. Another Rs 15,600 can be saved if he invests Rs 50,000 in the scheme on his own under Sec 80CCD(1b).


Income from employer

The tax will further reduce if some of the taxable allowances in Saluja’s pay are replaced with tax-free allowances. The conveyance and medical allowances are now taxable so should be replaced with tax-free reimbursements such as newspaper bills and food coupons. These perks are tax-free against submission of bills and actual usage. He should also ask for a higher telephone allowance because the expense under that head has shot up following the work-from-home arrangement. If he gets Rs 1,000 more per month for telephone, Rs 1,000 per month for books and periodicals and Rs 22,000 worth of food coupons in a year, his annual tax liability will reduce by around Rs 14,500.

Saluja has invested in fixed deposits. The interest is fully taxed at the rate applicable to him. He can save tax if he shifts from fixed deposits to debt funds or tax-free options such as the PPF. Gains from debt funds are taxed at 20% after indexation if he holds for more than three years.

Write to us for help
Paying too much tax? Write to us at etwealth@ timesgroup.com with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.