How to Save ₹ 1 Lakh on Taxes through Salary Perks and NPS Investments

Introduction

Managing taxes can be a complex task, but understanding the available deductions and utilizing them wisely can significantly reduce your tax burden.

Understanding NPS Benefits

The NPS is a low-cost pension scheme that offers tax benefits. By contributing up to 10% of your basic salary to NPS under Section 80CCD(2), you can claim a tax deduction. Although the compulsory annuity option is restrictive, it only applies to 40% of the corpus. The remaining 60% can be utilized as per your preference.

Opting for NPS Benefits

If your company offers NPS benefits, consider opting for them. By doing so, you can save approximately  ₹ 36,000 on taxes. Remember, this deduction is in addition to the 10% contribution made by your employer.

Personal NPS Investment

To further reduce your tax liability, invest ₹ 50,000 in the NPS on your own under Section 80CCD(1b). This additional investment can save you approximately ₹ 15,600 in taxes. As a 38-year-old, allocating a maximum of 75% to equity funds is recommended. Alternatively, you can choose the Lifecycle Fund option, where the allocation is determined by your age.

Exploring Tax-Free Salary Perks

Your company may provide a range of perks and allowances from which you can choose. Opt for tax-free perks such as newspaper bill reimbursements and Leave Travel Allowance (LTA). Let's look at how they can benefit you

A.    LTA: If you receive ₹ 1 lakh as LTA, you can save approximately ₹ 31,000 in taxes. Make sure to utilize this allowance for travel-related expenses.

B.    Newspaper Allowance: If you are eligible for a newspaper allowance of  ₹ 2,000 per month, you can save approximately ₹ 16,000 in taxes.

C.    Meal Coupons: If you receive meal coupons worth ₹ 26,400 annually, it can further reduce your tax liability by ₹ 16,000.

Maximizing Telephone Allowance

If you work from home, request a higher telephone allowance to cover your internet charges. By doing so, you can save on taxes indirectly by reducing your expenses.

Conclusion

By understanding and utilizing the available salary perks and investing in the NPS, you can significantly reduce your tax outgo. Opting for tax-free perks such as LTA, newspaper bill reimbursements, and meal coupons, along with making personal NPS contributions, can collectively save you up to ₹ 1 lakh on taxes. Remember to consult a tax professional or financial advisor to ensure you make the most appropriate choices based on your individual circumstances. Start exploring these options today to enjoy the benefits of lower tax liabilities and increased savings.