Tax optimiser: Salaried Chawla can save Rs 54,000 tax via NPS, LTA

By Sudhir Kaushik of Taxspanner.com

Hyderabad-based IT professional Kiran Chawla has a fairly tax-friendly salary structure but there is scope to reduce the tax outgo further. Taxspanner estimates that Chawla’s tax can be reduced by almost Rs 54,000 if his salary structure is rejigged and his company offers him the NPS benefit. Chawla lives on rent but has taken a home loan to purchase a house in his home town Chandigarh. So he claims both HRA exemption and deduction for home loan interest.

Income from employer

Income from other sources

He 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 leave travel allowance (LTA). LTA is tax free if claimed once in a block of two years. If he 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.


Tax-saving investments

Other deductions

Next, he should ask his company for the NPS benefit. Up to 10% of the basic salary put in the NPS by a company on behalf of the employee is deductible under Section 80CCD(2). If Chawla’s company puts Rs 96,420 (10% of his basic) in the NPS on his behalf, his annual tax will reduce by about Rs 22,000. Since he is already an investor in the NPS, he knows the allocation that suits his profile.

Kiran Chawla’s tax

He also pays a high tax on the interest from fixed deposits. This tax can be saved if he shifts to mutual funds. While interest from fixed deposits is fully taxable at the normal rate, the gains from mutual funds are taxed only at the time of redemption. Also, if held for more than three years, the gains from debt funds are taxed at 20% after indexation.

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