How to use NPS, perks to cut tax outgo by Rs 1.2 lakh

Delhi-based marketing manager Vijay Goyal pays a high tax because his pay structure is not very tax-friendly. TaxSpanner estimates that Goyal can save nearly Rs.1.2 lakh in tax if his company offers him the NPS benefit and rejigs the pay structure to include tax-free perks.

Goyal should start by asking his company to provide the NPS benefit. Under Section 80CCD(2), up to 10% of the basic salary put in the NPS on behalf of the employee is tax-free. If his company puts Rs.10,417 (10% of basic) in the NPS on his behalf every month, his annual tax will reduce by Rs.39,000. Since he already invests in the NPS, Goyal knows how the scheme works.


Next, he should ask for some basic tax-free allowances, such as reimbursement of fuel expenses, telephone and newspaper bills, and meal coupons. Fuel reimbursement of Rs.5,000 a month will reduce his annual tax by around Rs.19,000. Telephone reimbursements of Rs.1,500, newspaper allowance of Rs.1,000 and meal coupons worth Rs.2,200 per month will reduce his tax by around Rs.17,500. LTA of Rs.65,000 will shave off Rs.20,000 from the tax liability. More tax can be saved if Goyal gets gadget allowance. Under Section 17(2), gadgets bought for personal use are taxed at only 10% of the value. If Goyal buys gadgets worth Rs.60,000 in a year, his tax will reduce by Rs.19,000.


Goyal has parked his emergency fund of Rs.2.5 lakh in a fixed deposit. The interest is fully taxable. This can be avoided if he opts for a mutual fund. Though gains from funds are taxed at the same rate as FD interest, the tax is levied only when you withdraw.

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