Tax optimiser: Salaried Chaddha can save over Rs 71,000 in tax via NPS, perks
Gurgaon-based finance professional Rajeev Chaddha earns well but nearly a fifth of his income goes in tax because his compensation package is very tax unfriendly. Taxspanner estimates that Chaddha can save over Rs 71,000 in tax if his company offers him the NPS benefit and rejigs his salary structure to include some tax free perks. He also needs to shift from fixed deposits to debt funds to save on tax.
Income from employer
Chaddha should start by asking for the NPS benefit under Section 80CCD(2). Up to 10% of the basic salary put in the NPS is tax-free. If his company puts Rs 13,200 (10% of basic) in the NPS every month, his tax will be reduced by around Rs 49,500. Chaddha already invests in the NPS on his own and understands how the scheme works.
Income from other sources
Next, he should ask for a salary rejig. The medical and transport allowances in his pay are now taxable. If these are replaced by reimbursements for telephone expenses (Rs 1,250 per month), newspaper and books (Rs 500 per month) and food coupons (Rs 2,000 per month), Chaddha can save Rs 14,000 in tax. These perks are tax free against submission of bills.
Chaddha also needs to shift from tax unfriendly fixed deposits to debt funds to save tax. Interest from fixed deposits is fully taxable as income every year while the gains from debt funds are taxed only at the time of redemption. What’s more, if the holding period exceeds three years, the tax is only 20% after indexation benefit.