Tax optimiser: Kapoor can cut tax outgo via Rs 2.5 lakh tax-free limit of VPF

By Sudhir Kaushik of Taxspanner.com

Pune-based IT professional Pranav Kapoor pays a moderate tax because his salary structure is already quite tax friendly and he avails of all the deductions available to him. Even so, Taxspanner estimates that Kapoor can reduce his tax by about Rs 23,000 if his salary structure is rejigged slightly.

Income from employer

Kapoor’s company already offers him the NPS benefit under Section 80CCD(2), wherein up to 10% of the basic salary invested in the pension scheme is tax free. He also invests Rs 50,000 in the scheme on his own under Sec 80CCD(1b).


Income from other sources

His tax outgo can reduce if Kapoor gets some more tax-free perks. He gets a very low leave travel allowance (LTA) of Rs 24,000. LTA is tax-free if claimed twice in a block of four years. If his LTA is increased to Rs 72,000, Kapoor’s tax will reduce by almost Rs 15,000. Another Rs 7,000 will be saved if his company offers him food coupons worth Rs 22,000 in a year. These food coupons are tax-free and can be used to pay for groceries and food items at designated merchant establishments.

Tax-saving investments

A little more tax can be saved if he shifts from fixed deposits to debt funds. The interest from fixed deposits is taxed at normal rates while the gains from debt funds are taxed at a lower rate after three years.

Apart from these changes, Kapoor also needs to rejig his investments. He puts Rs 1.5 lakh a year in the PPF. Instead, he should utilise the tax-free limit of the Voluntary Provident Fund which offers a higher rate of interest. His contribution to the Provident Fund can be increased by about Rs 9,500 per month without breaching the tax-free limit.

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