Bengaluru-based IT professional Mahesh Kumar’s salary structure is reasonably taxfriendly but he doesn’t avail of all the tax breaks available to him. Taxspanner estimates that Kumar can save more than Rs 50,000 in tax if he opts for the NPS benefit offered by his company and invests in the scheme on his own. Also, some of the taxable allowances in his salary should be replaced with tax-free perks.
Income from employer
Income from other sources
Kumar should start by opting for the NPS benefit under Section 80CCD(2). Under this, up to 10% of the basic salary put by a company in NPS on behalf of the employee is tax deductible. If his company puts Rs 5,250 (10% of his basic salary) in the NPS every month, it will cut his annual tax by around Rs 20,000. Another Rs 15,600 can be saved if he invests Rs 50,000 in the NPS on his own.
At 32, Kumar should opt for an aggressive allocation with the maximum 75% in equity funds. Some of the perks (conveyance, medical) in his salary package are now taxable. If these are replaced by other tax-free perks such as reimbursements of telephone bills (Rs 2,000 a month) and books and periodicals (Rs 1,250 a month) he can save another Rs 12,000 in tax.
Mahesh Kumar’s tax
Kumar relies on the group health cover from his company. Group health covers are useful but end when a person changes jobs. He should buy a separate health cover of at least Rs 5 lakh for his family. A premium of Rs 20,000 will reduce his tax by Rs 6,240.
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