Dilip Vaz does not have too much scope to reduce his tax because his employer does not allow tweaking of the pay structure. Taxspanner estimates that he can bring down his tax by around Rs 8,652 if he invests more for retirement and buys medical insurance for his family.
Vaz should invest Rs 50,000 in the NPS under Section 80CCD(1b). This will reduce his tax by Rs 5,150. He should also buy medical insurance for his parents and his family. An annual premium of Rs 30,000 will cut his tax by around Rs 3,000. Avoiding short-term capital gains will also cut his tax.
Vaz is not too keen on investing in the NPS because he doesn’t want to lock up money for the next 28 years. But he has several traditional insurance policies in his portfolio. He pays an annual premium of Rs 1 lakh. These plans neither offer very high returns, nor give adequate life cover. He will be better off if he surrenders a few of these low yield products and puts money in the NPS.
When investing in the NPS, Vaz should opt for a higher equity exposure under the Aggressive Lifestage Fund. At 32, he can take up to 70% exposure to stocks. This exposure to stocks will progressively come down as he grows old. Save tax beyond 80C, Optimize Tax Now!
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(As Published in ET Wealth on Jan 23, 2017)