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Tax optimiser: How salaried Pandit can cut tax by 80% by rejigging salary, opting for NPS

Pandit’s tax can be reduced by more than 80% if salary is rejigged to include tax-free perks, he opts for the NPS benefit offered by his company.

ET CONTRIBUTORS|
Updated: May 07, 2018, 01.57 PM IST
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Pandit knows he can cut tax through NPS, but his home loan EMI and endowment policies leave him with no surplus.
By Sudhir Kaushik of Taxspanner.com

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 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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Write to us for help
Paying too much tax? Write to us at etwealth@ timesgroup.com with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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