NPS, perks can cut income tax by Rs 50,000; know how

Mumbai-based sales professional Narendra S.P. pays a low tax, but there is scope to bring it down further. TaxSpanner estimates that Narendra can reduce his tax by over Rs.50,000 if some of the taxable allowances in his salary are replaced with tax-free perks, if his company offers him the NPS benefit, and he too invests in the pension scheme on his own. Narendra should start by asking his company to replace the medical and conveyance allowances in his salary. These perks are now taxable. Instead, he should get a reimbursement for telephone and newspaper bills. If he gets a telephone allowance of Rs.18,000 (Rs.1,500 a month), and books and newspaper allowance of Rs.12,000 (Rs.1,000 a month), his tax will reduce by Rs.9,360.

Next, he should ask his company to offer the NPS benefit. Under Section 80CCD(2), up to 10% of the basic salary put in the NPS is tax-deductible. If his company puts Rs.6,737 (10% of his basic pay) in the NPS every month, his tax will come down by more than Rs.25,000. Another Rs.15,600 can be saved if he invests Rs.50,000 in the scheme on his own under Section 80CCD(1b). However, this will reduce his take-home pay. Given that he has taken a home loan this year, a reduced take-home salary may not be an easy decision to take. Instead, Narendra should rejig his tax-saving investments. His contribution to the Provident Fund and life insurance premiums already offer him deduction under Section 80C. So he can reduce his investments in ELSS funds and put Rs.50,000 in the NPS.

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