Hyderabad-based software engineer Ganesh Karthik pays a high tax because his pay structure is not tax friendly. House rent allowance is the only tax-free portion of his salary and that too gets partially taxed. Taxspanner estimates that Karthik can save almost Rs 1.1 lakh if he gets some tax-free allowances, his company offers him NPSbenefit and he invests in the scheme on his own.
Karthik should start by asking his company to reimburse his vehicle fuel bills. If he gets Rs 6,000 a month, his tax reduces by Rs 22,500. Next, he should ask for reimbursement of telephone and newspaper bills. If he gets Rs 1,000 per month for each, he can save Rs 7,500 in tax. If he gets Rs 60,000 as LTA, he can save Rs 18,720 in tax. Food coupons worth Rs 22,000 will save him Rs 6,800. These perks are tax free against submission of bills.
Income from employer
Income from other sources
Karthik’s company plans to roll out the NPS benefit this year. Under Section 80CCD(2), 10% of the basic salary put in the NPS is tax free. If his company puts Rs 9,500 (10% of his basic salary) in the NPS every month, his annual tax will reduce by Rs 35,600. Another Rs 15,600 can be saved if he invests Rs 50,000 in the NPS under Sec 80CCD(1b) on his own. At 35, Karthik should opt for an aggressive allocation which puts 75% of the corpus in equity funds.
However, NPS investments are locked till retirement. On maturity, at least 40% of the corpus has to be put in an annuity to earn a pension that is fully taxable.
Ganesh Karthik’s tax
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