How NPS will help Bahugana further lower her tax outgo

Perks such as telephone and newspaper bill reimbursements are tax free against submission of bills. 

Nidhi Bahugana is paying a very low tax but there is scope to bring it down further. Taxspanner estimates that Bahugana can reduce her tax by more than 40% if her company gives her some tax-free perks and she invests more in the NPS for retirement.

As a first step, Bahugana should ask her company for the NPS benefit. Under Section 80CCD(2d), up to 10% of the basic salary put in NPS is deductible. If her company puts Rs 3,267 in the NPS on her behalf every month, her annual tax will reduce by about Rs 5,200. But this will also reduce her monthly takehome pay by about Rs 2,850.

More tax can be saved if Bahugana invests in the NPS under Sec 80CCD(1b). She already puts Rs 25,000 in the scheme in a year. If this investment is raised to Rs 50,000, she will save Rs 1,300 more. At 36, Bahugana should opt for a balanced allocation in the NPS.

Next, she should ask for tax-free allowances such as telephone and newspaper bill reimbursements. These perks are tax free against submission of bills. If she gets Rs 12,000 under these heads, her tax will reduce by about Rs 625. However, the problem is that Bahugana’s employer does not allow changes in the pay structure.

Bahugana has done well to utilise her Sec 80C limit judiciously. She invests in ELSS funds to build wealth and has bought a low-cost term insurance plan. But she needs to get rid of the high -cost traditional insurance plans in her portfolio.

Income from employer

Income from other sources


(As published on The Economic Times wealth, September 17, 2018)