Chenappan can cut tax outgo by Rs 64K via NPS, salary rejig

Sudhir Kaushik of tells readers how they can optimise their tax by rejigging their income and investments. 


Senthil Chenappan earns well but his pay structure is not very tax friendly. All the allowances he gets are taxable, which pushes up his tax liability. 

Taxspanner estimates that Chenappan can reduce his tax by nearly Rs 64,000 if he gets some tax-free perks, his company offers him NPS benefit and he invests more in the pension scheme on his own.

Chenappan should start by asking his company to replace the transport allowance in his pay with telephone and newspaper bills reimbursements. He should also ask for leave travel assistance and food coupons. These perks are tax free against submission of bills and actual usage. If he gets Rs 88,000 under these heads, his tax will reduce by about Rs 27,500. 

Next, he should ask for the NPS benefit from his company. Under Sec 80CCD(2d), up to 10% of the basic salary put in NPS is deductible. If his company puts Rs 7,748 in the NPS on his behalf every month, his tax will reduce by about Rs 29,000. Another Rs 15,600 can be saved under Sec 80CCD(1b) if he invests Rs 50,000 in the NPS on his own. At 38, Chenappan should opt for a balanced allocation, allocating 33.3% each to the equity, corporate debt and gilt funds. However, this will reduce his take home pay.

Chenappan should also note that NPS investments are locked till retirement. On maturity, at least 40% of the corpus has to be put in an annuity to earn a pension that will be fully taxable 



(As published on The Economic Times wealth, August 13, 2018)