Reducing Tax through restructuring salary, by opting for NPS
Mahesh Pandit is not paying a very high tax, but he can reduce it further. Taxspanner estimates that Pandit’s tax can be reduced by more than 80% if his salary is rejigged to include more tax-free perks, he opts for the NPS benefit offered by his company and invests more in the scheme on his own.
Pandit should ask his company to remove the medical reimbursement and conveyance allowance in his salary. With the introduction of the standard deduction, these perks are now taxable. Instead, he should ask for reimbursement of telephone expenses and leave travel assistance (LTA). Both these perks are tax-free on submission of actual bills. This rejig will save him about Rs 6,500 in tax. He should also opt for the NPS benefit offered by his company.
Under Sec 80CCD(2d), up to 10% of the basic salary put in NPS is deductible. If Pandit’s company puts Rs 48,564 (10% of his basic) in the scheme, his tax will reduce by about Rs 12,000. Another Rs 10,400 can be saved if he invests Rs 50,000 in the NPS under Sec 80CCD(1b). Pandit knows he can cut tax through NPS, but his home loan EMI and endowment policies leave him with no surplus. He should junk some of the costly plans to free up the money that can help him save tax. He should also buy a Rs 1 crore term plan to safeguard his family’s future.
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