Krishan Kumar has to pay very little tax but there is scope to cut it down further. Taxspanner estimates that Kumar can reduce his tax by more than 30% if his company offers him NPS benefit and he invests more in the scheme on his own. He also needs to extend the holding period of his investments to minimize capital gains.
Kumar should start by asking his company for NPS benefit. Up to 10% of the basic salary put in the NPS by a company on behalf of the employee is deductible under Section 80CCD(2d). If Kumar’s company puts Rs 40,708 (10% of his basic) in the NPS, his tax will reduce by about Rs 8,500.
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Another Rs.10,400 can be saved if he invests Rs.50,000 in the NPS on his own under Sec 80CCD(1b). Kumar is young and has a high risk appetite. He should opt for the Aggressive Lifecycle Fund in the NPS which allocates 75% to equities and reduces the exposure as the investor grows older.
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Kumar plays the stock markets and has earned short-term and long-term gains. This year’s Budget has imposed a tax on long-term gains beyond Rs 1 lakh. Kumar should try and hold his investment for the long term to earn better returns and incur lower tax. He should also avoids investing in bank deposits. Instead, he should go for tax-free options such as PPF or defer the tax by opting for short-term debt funds.
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(As Published in ET Wealth– Apr 06, 2018)