Sudhir Jaiswal should start by opting for the National Pension System or NPS benefit offered by his company. Under Section 80CCD(2), up to 10% of the basic salary put in the NPS is tax free.
By Sudhir Kaushik of Taxspanner.com
Pune-based engineer Sudhir Jaiswal earns well but pays a high tax because his salary structure is not tax friendly and he doesn’t take advantage of all the deductions available to him. Taxspanner estimates that Jaiswal can save almost Rs 47,000 in tax if he gets some tax-free perks, opts for the NPS benefit offered by his company and also invests in the scheme on his own. He also needs to buy health insurance for his mother.
Jaiswal should start by opting for the NPS benefit offered by his company. Under Sec 80CCD(2), up to 10% of the basic salary put in the NPS is tax free. If his company puts Rs 4,285 (10% of his basic pay) in the NPS every month, his annual tax will be cut by Rs 10,700. Another Rs 10,400 can be saved if he invests Rs 50,000 in the pension scheme on his own. Jaiswal is only 32, but has very little equity exposure. He should allocate the maximum 75% to equity funds in NPS.
Jaiswal should also ask his company to replace the taxable medical allowance in his salary with meal coupons. He should also ask for a newspaper allowance and a gadget allowance. If Jaiswal gets meal coupons worth Rs 22,000 and newspaper allowance of Rs 12,000, his tax will reduce by Rs 8,300 . A gadget allowance of Rs 40,000 (where the employee is taxed for only 10% of the value of items purchased in company’s name) will further reduce the tax by Rs 7,500.
Jaiswal has purchased health insurance for himself and his family, but his senior citizen mother does not have medical cover. He should buy a medical plan for her. A premium of Rs 40,000 will cut his tax by Rs 4,600.
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