How NPS, other perks can save Rs.1 lakh income tax

Hyderabad-based software professional Surajit Ghosh earns well, but also pays a high tax because his salary structure is not very tax-friendly. TaxSpanner estimates that Ghosh can reduce his tax outgo by more than Rs.1.1 lakh if his salary includes some more tax-free perks and he shifts from tax-inefficient fixed deposits to debt funds.

Ghosh already has some tax-free allowances, but should explore the possibility of getting leave travel allowance (LTA). An LTA of Rs.1 lakh will reduce his tax by Rs.31,200. He should also ask his company for gadget allowance. Under Section 17(2), gadgets and household appliances bought in the name of the company and given to the employee for personal use are taxed at only 10% of their value. This perk came into focus during the ‘work from home’ phase after the Covid-induced lockdown. If Ghosh buys items such as computers, white goods and ACs worth Rs.1.2 lakh in a year (Rs.10,000 per month), his tax will be reduced by around Rs.37,500.

Ghosh has opted for the NPS benefit from his company. If he invests Rs.50,000 in the scheme on his own under Section 80CCD(1b), his tax will come down further by Rs.15,600. At 33, Ghosh should adopt an aggressive allocation and put the maximum 75% of the corpus in equity funds.

Ghosh paid very high capital gains tax last year. He can reduce this by holding his investments for longer periods. More tax can be saved if he switches from fixed deposits to debt funds. While interest from deposit is taxed every year, gains from debt funds are taxed only in the year of withdrawal.

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