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Tax Optimiser: How salaried Kumar can reduce his tax outgo by 34% using NPS

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.

ET CONTRIBUTORS|
Apr 09, 2018, 06.30 AM IST
0Comments
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By Sudhir Kaushik of Taxspanner.com

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 minimise 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.

Income from employer
kumar-income

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.
kumar-tax-saving

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 avoid 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.
kumar-tax-saved

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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