Pune-based professional Abinash Sinha earns well but also pays a high tax because his salary structure is not very tax friendly and he doesn’t avail of all the deductions available to him. Taxspanner estimates that Sinha can save nearly Rs 83,000 in tax if his pay structure is rejigged, he opts for the NPS benefit offered by his company and also invests in the scheme on his own.
Sinha 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 9,500 (10% of his basic pay) in the NPS every month, his annual tax will be cut by around Rs 35,600. Another Rs 15,600 can be saved if he invests Rs 50,000 in NPS on his own. At 47, he should allocate around 50% to equity funds.
Sinha should also ask his company to rejig his pay structure. Conveyance reimbursements of Rs 3,000 a month are too low and should be hiked to Rs 5,000 a month. This will cut his annual tax by Rs 7,500. He should also ask for reimbursements of newspaper bills and a gadget allowance. A newspaper allowance of Rs 1,000 a month and a gadget allowance of Rs 60,000 in a year will reduce the tax by around Rs 22,500.
Sinha can save more tax if he minimises his capital gains by extending the holding period. He should also avoid fixed deposits as the interest is fully taxabe. Debt funds are a viable alternative. They are taxed at a lower rate if held for at least three years. Besides these tax moves, Sinha should buy a term insurance plan of Rs 1.5 crore to safeguard his goals.
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