How to Decrease Your Tax Liability by 52% with Salary Perks and NPS: Understanding the complexities of tax laws can significantly assist individuals in managing their finances and minimising their tax liability. By utilising salary benefits strategically and investing in the National Pension Scheme (NPS), tax obligations can be substantially reduced.
Understanding the complexities of tax laws can significantly assist individuals in managing their finances and minimising their tax liability. By utilising salary benefits strategically and investing in the National Pension Scheme (NPS), tax obligations can be substantially reduced. Consider Mr. A, a Chennai-based automobile engineer, as an example.
How to Decrease Your Tax Liability by 52% with Salary Perks and NPS: A crucial instrument for tax saving
NPS is a government-sponsored pension plan intended to encourage individuals to save for retirement while also providing tax benefits under various sections of the Income Tax Act. Mr. A would begin his tax-saving journey by electing the NPS benefit offered by his employer. Under Section 80CCD(2), up to 10% of the basic remuneration contributed to the NPS is tax-deductible. For instance, if the employer contributes Rs 4,114 per month (10% of the employee’s basic salary) to the NPS, his annual tax liability could be reduced by Rs 10,268.
Under Section 80CCD(1b), he can further reduce his tax liability by investing Rs 50,000 in the NPS. This investment could help Mr. A save an additional 10,400 rupees, bringing him closer to the tax rebate eligibility threshold.
Utilising salary benefits to minimise taxes
Multiple components of a compensation can help reduce taxable income. Using meal coupons, for instance, can be a tax-saving strategy. These coupons may not be redeemable in small stores, but they are widely acknowledged in large supermarkets. By using a maximum of Rs 30,000 in food discounts, it is possible to save Rs 6,250 in taxes.
Tax-free reimbursements for telephone bills and newspaper subscriptions, as well as the Leave Travel Allowance (LTA), can also substantially reduce the tax burden. A person who receives telephone and newspaper reimbursements of Rs 24,000 per year (Rs 1,000 per month under each account) and LTA of Rs 60,000 may be eligible for a tax reduction of approximately Rs 17,500.
Insurance as a tax-saving device
Under Section 80D of the Income Tax Act, health insurance premiums paid for oneself, one’s spouse, one’s children, and one’s parents may be claimed as tax deductions. Although his employer provides a group health plan that covers his family and parents up to Rs 5 lakh, it would be prudent to purchase an additional health insurance policy. Mr. A could reduce his tax liability by approximately Rs 7,500 if he pays an annual premium of Rs 36,000.
How to Decrease Your Tax Liability by 52% with Salary Perks and NPS: Prudent investment choices
By investing in debt funds, you can avoid paying taxes on interest from fixed deposits. In addition, balanced mutual funds, which incorporate equity and debt investments, provide portfolio stability by reducing market volatility. They provide regular income from the interest earned on the debt component and the possibility of capital appreciation from the equity component, making them a suitable choice for long-term wealth creation and risk management.
