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Tax optimiser: NPS and perks can help Sinha reduce his tax outgo by Rs 40,000

ET Wealth tells readers how they can optimise their tax by rejigging their income and investments.

Updated: Aug 05, 2019, 01.47 PM IST
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The interest from bank fixed deposits is fully taxable.
By Sudhir Kaushik of

Mumbai-based HR professional Apara Sinha does not have a very high tax outgo, but there is scope to bring it down significantly. Taxspanner estimates that Sinha can save more than nearly Rs 40,000 in tax if her company offers her the NPS benefit and she invests in the scheme on her own. Also, some of the taxable allowances in her salary should be replaced with tax-free perks.

Some of the allowances in Sinha’s pay package are taxable. The conveyance and medical allowances should be replaced with reimbursements of telephone bills (Rs 1,000 a month) and books and periodicals (Rs 500 a month). This will save her almost Rs 3,800 in tax. If she also gets LTA of Rs 60,000 a year, it will cut her tax by Rs 12,500 in tax. If LTA is claimed once in a block of two years, it is tax free.

Income from employer

Sinha should ask her company for the NPS benefit. Under Section 80CCD(2), up to 10% of the basic salary put in NPS is tax free. If her company puts Rs 4,611 (10% of her basic) in the NPS every month, it will cut her annual tax by around Rs 11,500. Another Rs 10,400 can be saved if she invests Rs 50,000 in NPS on her own. At 35, Sinha should opt for an aggressive allocation with the maximum 75% in equity funds.



Sinha has invested in bank fixed deposits and post office schemes. The interest from bank FDs is fully taxable. If she switches to debt funds, she can save about Rs 2,000 in tax. Gains from debt funds are taxed at a lower rate if the investment tenure exceeds three years.

Write to us for help
Paying too much tax? Write to us at etwealth@ 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

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