Tax optimiser: NPS, salary benefits can help Jain cut income tax by Rs 54,000

By Sudhir Kaushik of Taxspanner.com

Mumbai-based finance professional Deepak Jain pays a moderate tax because he claims HRA exemption as well as home loan deduction. His pay structure is quite fairly tax-friendly, but there is scope to reduce the tax outgo further. Taxspanner estimates that Jain can cut tax by almost Rs 54,000 if his pay structure is rejigged and his company offers him the NPS benefit.

Income from employer

Income from other sources

Jain should start by asking his company to replace the taxable medical and conveyance allowances in his salary with tax-free perks such as newspaper allowance and LTA. LTA is tax free if claimed once in a block of two years. With Covid restrictions being lifted, LTA can be used to travel within India. If Jain gets an LTA of Rs 80,000 per year and newspaper allowance of Rs 500 per month, it will reduce his tax by almost Rs 24,000.


Next, he should ask his company for the NPS benefit. Up to 10% of the basic salary put in the NPS on behalf of the employee is deductible under Sec 80CCD(2). If Jain’s company puts Rs 8,035 (10% of his basic) in the NPS on his behalf every month, his annual tax will reduce by about Rs 22,000. At 38, Jain should put 50% of the corpus in equities.
Tax saving investments

Jain has about Rs 1 lakh in bank deposits. He pays a high tax on the interest. This tax can be saved if he shifts to mutual funds. Interest from fixed deposits is taxed at the normal rate, but gains from mutual funds are taxed only on redemption. Also, if held for more than three years, the tax rate is 20% after indexation.

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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.