NPS and health cover helps Madhok to cut tax outgo by over Rs.53000

Gurgaon-based financial analyst Sudhir Madhok earns a high salary, but also pays a high tax. He has not availed of many tax deductions available to him. 

Taxspanner estimates Madhok’s tax can be reduced by over Rs 53,000 if he opts for the NPS benefit offered by his company, he invests more in the scheme on his own and buys a health cover for his family. If Madhok opts to put 10% of his basic salary in the NPS under Section 80CCD(2d), his tax will reduce by about Rs 24,000. Another Rs 15,600 can be saved if he invests Rs 50,000 in the NPS on his own under Sec 80CCD(1b). He is only 29, so Madhok should opt for the Aggressive Lifecycle Fund in the NPS which allocates 75% to equities and reduces the exposure as the investor grows older. 
Both Madhok and his wife are covered by group health insurance from their employers. However, his parents and younger sister are not covered by these plans. He should buy a health insurance plan that covers his parents and sister as well. A premium of Rs 25,000 will reduce his tax by almost Rs 5,600. Madhok also needs to review his tax planning and insurance portfolio. He should buy a term insurance cover of at least Rs 1 crore, which will cost him roughly Rs 8,000 per year for 30 years. Contributions to the PPF should be reduced to the minimum Rs 500. Instead, he should start an SIP of Rs 5,000 a month in an ELSS fund (see page 22 for best schemes). 

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(As Published in ET Wealth– Apr 06, 2018)