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Tax optimiser: NPS, health insurance cover can help Rathore cut tax

You can optimise tax by rejigging your income and investments. In this taxpayer's case, there is scope for further tax reduction if he makes use of all the deductions available. For instance, he should invest in NPS on his own too.

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Last Updated: Dec 16, 2019, 06.30 AM IST
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More tax can be saved by medical insurance. Don't rely on just the group cover given by your employer.
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By Sudhir Kaushik of Taxspanner.com

Delhi-based manager Deep Singh Rathore pays a moderate tax because his salary structure is quite tax friendly. But there is some scope to cut the tax further because he doesn’t claim all the deductions available to him. Taxspanner estimates that Rathore can reduce his tax by more than Rs 30,000 if he invests more in the NPS on his own and buys medical insurance for his family and senior citizen mother.

Income from employer
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Rathore has opted for the NPS benefit offered by his company. Under Sec 80CCD(2), up to 10% of the basic salary put in the scheme is tax free. However, he does not invest in the scheme on his own. Rathore can save Rs 15,600 in tax if he puts Rs 50,000 in the scheme under Section 80CCD(1b).

Income from other sources
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At 37, he should opt for a balanced allocation that divides the corpus in gilt funds, corporate debt funds and equity funds.

More tax can be saved by medical insurance. Though Rathore’s company offers group medical insurance, such covers cease when the person leaves the company or retires. A medical cover of Rs 5 lakh for his family and another policy of Rs 5 lakh for his senior citizen mother will cost him about Rs 45,000 and cut his tax by roughly Rs 14,000.

Tax-saving investments
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Rathore also has some fixed deposits. He should shift to debt funds to save tax. While interest from fixed deposits is fully taxable as income, gains from debt funds are taxed only at the time of withdrawal. If the holding period is more than three years, the gains are taxed at 20% after indexation.

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(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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