How to lower your taxes by 33% through investments
December, 02nd 2015
Rahul Tyagi is a software engineer based in Hyderabad. His annual income is Rs 12.70 lakh a year. A good part of his income goes into tax because his salary structure is not very tax efficient. Tyagi can reduce his tax by nearly 33% by making a few changes in his salary and investments.
First, he should ask his employer to rejig his compensation structure. Instead of giving a very high special allowance, his company should reimburse his telephone and newspaper bills. These are tax free against submission of actual bills. He should also ask for food coupons. Together, these three perks will reduce his tax by almost Rs 11,000.
Next, he should ask the company to put 10% of his basic (Rs 48,600) in the NPS. This is deductible under Sec 80CCD(2). This will cut his tax by another Rs 9,800. If he puts Rs 50,000 in the NPS under the newly introduced Sec 80CCD(1b), his tax will further come down by Rs 10,000.
However, before he commits so much to the NPS, Tyagi should know the rules governing the pension scheme. NPS investments cannot be withdrawn before he retires and 40% of the corpus must be put in an annuity to get monthly pension.