Satheesh Kumar has a fairly tax-friendly pay structure but he pays a high tax because he is not able to claim many tax benefits.
Satheesh gets an HRA of Rs 4.09 lakh (Rs 34,129 per month) but his rent is so low (Rs 10,000 a month) that almost the entire amount gets taxed. He is able to claim exemption for only Rs 17,724 (Rs 1,477 per month).
Taxspanner estimates that if his company offers him the NPS benefit and he invests in the scheme on his own, Satheesh can reduce his tax by nearly Rs 53,000. Though Satheesh's company does not allow changes in the tax structure, he can suggest the introduction of NPS benefit.
His company can reduce his special allowance and put 10% of the basic pay in the NPS under Sec 80CCD(2d). If Rs 8,500 is put in the NPS every month, it will reduce his annual tax by almost Rs 32,000.
The tax will come down further by Rs 15,450 if Satheesh puts Rs 50,000 in the NPS under Sec 80CCD(1b). At 34, Satheesh should opt for the Aggressive Lifecycle Fund (LC-75) which puts 75% of the corpus in equity funds. However, NPS investments are for the long term. He can't withdraw the money before retirement except in case of an emergency and for specified purposes. There are expectations that the coming budget will make the NPS more attractive for investors.
INCOME FROM EMPLOYER
All figures are in Rs
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