Tax optimiser: How Choudhury can save Rs 57,000 in tax via NPS

Tax optimiser: How Choudhury can save Rs 57,000 in tax via NPS and other deductions

Hyderabad-based IT professional Ranjan Choudhury pays a high tax because his salary is not very tax friendly and he doesn’t avail of some deductions.

Taxspanner estimates that Choudhury can save more than Rs 57,000 in tax if he claims deduction for his special child, his company offers him the NPS benefit and he invests in the scheme on his own.

Income from employer

Choudhury has a special child with a 40% disability. Under Section 80DD, he can claim deduction of Rs 75,000. He will have to submit a certificate from a medical authority and the Form 10-IA along with a declaration stating the expenses incurred by him.

These include expenses on medical treatment, training and rehabilitation and insurance premium. A deduction of Rs 75,000 will reduce his tax by Rs 23,400.

Tax-saving investments

Next, he should ask his company for the NPS benefit under Section 80CCD(2). Up to 10% of the basic salary put in NPS is tax free. If his company puts Rs 3,920 (10% of his basic) in the NPS every month, it will cut his annual tax by around Rs 14,500. Another Rs 15,600 can be saved if he invests Rs 50,000 in NPS on his own. At 38, Choudhury should put the maximum in equity funds.

Ranjan Kumar Choudhury’s tax 

 

Some of the allowances in Choudhury’s pay package are taxable. The medical allowance should be reduced and replaced with reimbursements of newspaper bills (Rs 500 a month). This will save him roughly Rs 1,850 in tax.