Tax Optimizer: How NPS, study loan can help Chennai's Veeraswamy save tax

Chennai-based S. Veeraswamy pays almost 12.5% of his income in tax because his salary structure is not tax friendly. However, his employer does not allow changes in the structure so there is very little wiggle room for him to save more tax. Even so, Taxspanner estimates that Veeraswamy can reduce his tax by over Rs 42,000 if the pay structure is rejigged, he saves more for retirement and also takes an education loan to fund his son’s engineering degree.

Veeraswamy should ask his company to reduce his special allowance and instead put that amount in the NPS on his behalf under Section 80CCD(2d). If Rs 51,000 is put in NPS every year, his tax will be cut by about Rs 15,800. If he invests Rs 50,000 more in the NPS under Sec 80CCD(1b), his tax can be cut by another Rs 15,450. At 54, he should opt for a conservative allocation in the NPS. He should put 40% in corporate bond funds, 40% in gilt funds and 20% in equity funds.

Veeraswamy’s son is set to join a professional college this year. If he takes an education loan, the interest paid can be claimed as a deduction. Assuming he pays an interest of Rs 36,000, his tax can be reduced by roughly Rs 11,000.

INCOME FROM EMPLOYER


All figures in Rs


S. VEERASWAMY’S TAX


(Sudhir Kaushik of Taxspanner.com advises readers on how to restructure their income, investments and expenses to optimise their tax.)