Tax optimiser: Salaried Shanker can save more tax if employer contributes to his NPS

Not only should you ask your employer for the NPS benefit, but you should also invest in the scheme on your own. You can reduce your tax outgo significantly.

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Here's how you can optimise your tax by rejigging your income and investments.
By Sudhir Kaushik of

Pune-based automobile engineer M. Shanker pays a high tax because his salary structure is not very tax friendly and he doesn’t avail of all the tax deductions available to him. Taxspanner estimates that Shanker can save nearly Rs 67,000 in tax if he opts for the NPS benefit offered by his company and invests in the scheme on his own. Also, some of the taxable allowances in his salary should be replaced with tax-free perks.

Income from employer


Income from other sources


Shanker should start by opting for the NPS benefit offered by his company under Section 80CCD(2). Up to 10% of the basic salary put in NPS is tax free. If his company puts Rs 5,500 (10% of his basic) in the NPS every month, it will cut his annual tax by around Rs 20,500. Another Rs 15,600 can be saved if he invests Rs 50,000 in NPS on his own.

Tax-saving investments


Other deductions


At 33, Shanker should opt for an aggressive allocation with the maximum 75% in equity funds. Next, he should ask his company for a few tax-free perks. The conveyance allowance in his salary is now taxable so it can be removed. Instead, he should ask for reimbursements of telephone bills (Rs 500 a month), books and periodicals (Rs 500 a month), food coupons (Rs 2,200 a month) and LTA (Rs 50,000 a year). These will save him roughly Rs 27,500 in tax.

M. Shankar’s tax


Shanker has invested in fixed deposits and bonds. The interest is fully taxable. If he switches to debt funds, he can save about Rs 2,600 in tax. Gains from debt funds are taxed at a lower rate if the investment tenure exceeds three years.

Write to us for help
Paying too much tax? Write to us at etwealth@ with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of




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