Tax optimiser: Salaried Kapoor can save Rs 19,000 tax via NPS, perks

Sudhir Kaushik of Taxspanner.com

Bangalore-based IT professional Mohit Kapoor has a tax-friendly salary structure but Covid-19 has changed his tax liability. Kapoor is unable to claim the LTA in his salary, which has pushed up his tax liability.

Taxspanner estimates that Kapoor can save almost Rs 19,000 if his salary structure is rejigged and he invests more in NPS on his own.


Income from employer

Income from other sources

Though restrictions on travel are slowly being lifted, news reports suggest that it will not be safe to travel till a vaccine is available. Kapoor should, therefore, ask his company to replace the leave travel allowance (LTA) with tax-free perks like newspaper allowance and food coupons. He should also ask for an allowance for purchasing household goods and furnishings. Under Section 17(2), the employee is taxed for 10% of the value of the asset, though computers and laptops are exempt from tax. If his LTA is replaced with these perks, Kapoor can reduce his tax by Rs 12,500.

Tax-saving investments

Other deductions

His company offers Kapoor the NPS benefit, under which 10% of his basic salary (Rs 3,031) is invested in NPS every month. He can invest up to Rs 50,000 in the scheme on his own under Sec 80CCD(1b) to save Rs 2,600 more in tax. Since he is already an investor, he knows the allocation that suits him.

Mohit Kapoor’s tax

Kapoor invests in fixed deposits and earns Rs 45,000 interest every year. He can save almost Rs 2,400 in tax by shifting from fixed deposits 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 short-term debt funds are taxed at 20% after indexation benefit.

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