NPS INVESTMENT CAN SAVE TAX IN NEW TAX REGIME AS WELL; HERE'S HOW

Kolkata-based software professional Sandeep Roy pays a low tax because his salary is quite taxefficient. He has opted for the new tax regime, so there are very few tax deductions and exemptions, and he is not required to furnish any proof of investments or expenses. Even so, there is scope to bring down the tax outgo. TaxSpanner estimates that Roy can save about Rs.19,000 in tax if his company offers him the NPS benefit, as also some tax-free perks.

Roy should start by asking his company for the NPS benefit. Under Section 80CCD(2), up to 10% of the employee’s basic salary put in the pension scheme is tax-free. This limit is higher at 14% for taxpayers like Roy who have opted for the new tax regime. If his company puts Rs.5,670 (14% of his basic salary) in the NPS on his behalf every month, his annual tax will reduce by about Rs.10,600. The NPS contribution will reduce his takehome pay. If this poses a problem, Roy should reduce his contribution to the PPF to allow investment in the NPS.

Next, he should ask for food coupons as part of his salary. These are tax-free if used for buying food items. If Roy gets food coupons worth Rs.26,400 (Rs.2,200 per month), his annual tax will reduce by around Rs.4,100.

More tax savings are possible if Roy changes his stock investment behaviour. Last year, he paid almost Rs.6,000 in tax on short-term capital gains from stocks. This year’s Budget has increased the tax rate on shortterm gains from 15% to 20%. Roy should hold his stocks for at least one year to enjoy tax-free gains of up to Rs.1.25 lakh in a financial year.

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Paying too much tax? Write to us at etwealth@ timesgroup.com with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.