How to save Rs 91,000 in tax using NPS, salary perks
Mumbai-based business analyst Sweta Chandra earns well, but also pays a high tax because her salary structure is not very tax-friendly, she doesn’t avail of all the deductions available to her, and invests in tax-inefficient options. TaxSpanner estimates that Chandra can save more than Rs.91,000 in tax if the taxable allowances in her salary are replaced with tax-free emoluments and her employer offers her the NPS benefit. She also needs to invest in the pension scheme on her own.
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As a first step, Chandra should ask her company to replace the medical allowance in her pay with leave travel allowance (LTA). Medical allowance is taxable, but LTA is tax-free if claimed twice in a block of four years. An LTA of Rs.80,000 will shave off almost Rs.25,000 from her tax. She should also ask for some basic tax-free perks, such as newspaper allowance and food coupons. Newspaper allowance of Rs.1,000 per month and meal coupons worth Rs.2,200 per month will cut her tax by Rs.12,000.
Next, Chandra should ask for the NPS benefit. Under Section 80CCD(2), up to 10% of the employee’s basic salary put in the pension scheme is tax-free. If her company agrees to put Rs.6,589 (10% of basic pay) in the NPS every month, her annual tax will reduce by about Rs.25,000. Another Rs.15,600 can be saved if she invests Rs.50,000 in the NPS on her own under Section 80CCD(1b). At 32, Chandra should
