Tax Optimizer: How salaried Vinayak can cut tax outgo by rejigging pay structure

By Sudhir Kaushik of Taxspanner.com

Rohan Vinayak pays a very low tax but there is scope to pare it down further. Taxspanner estimates that if his company rejigs his pay structure to include a few tax-free reimbursements and offers him the NPS benefit, his tax can come down by more than Rs 21,000.

Vinayak should start by asking his company to reimburse his telephone and newspaper bills. If he gets Rs 24,000 under these heads, his tax will reduce by around Rs 5,000. Next, he should ask his company to reduce his special allowance and put 10% of the basic pay in the NPS under Section 80CCD(2d). If Rs 2,395 is put in the NPS every month, it will reduce his annual tax by almost Rs 6,000.


The tax will come down further by Rs 10,300 if Vinayak puts Rs 50,000 in the NPS under the new Section 80CCD(1b). Vinayak is young so he should opt for the Aggressive Lifecycle Fund that puts 75% of the corpus in equity funds. This is Vinayak’s first year in the job so he has very little idea about tax planning. When his company asked him to declare his Sec 80C investments, he had planned to buy an insurance policy.

But an insurance policy will give very low returns of 4-5% and the premium will become a millstone around his neck for the next 20-25 years. Taxspanner advises him to open a PPF account instead and start investing in ELSS funds through SIPs.

Income From Employer

All figures in Rs.

Tax-saving investments

Vinayak’s Tax

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