FY 2017-2018: Revamp Your Salary Structure to Save Extra Tax

Written on Monday, April 3, 2017
By Mohit Mittal - Head Fixed Income

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The new financial year has just started. So what are your financial plans for this year? But before you move forward, look back into your financial arena of the last year, so that you can have a better planned year ahead. Last year, how was your experience with tax saving? If you had ended up paying too much taxes, then this blog will provide you a way out of it. Just a little revamp in your salary structure can save you some extra tax this year. Here, we are talking about Corporate – NPS, which gives you tax benefits under Sec 80CCD(2). Please note, Sec 80CCD(2) is different from the otherwise popular NPS tax benefiting sections, i.e Section 80 C and and Section 80CCD(1B).

Tax Saving through National Pension System

As you know NPS (National Pension System), apart from a retirement planning solution, is also a highly valued tax-saving product. Initially, under section 80C, one could save tax on his/her NPS contribution up to Rs. 1.5 Lakh. But later on, section 80CCD(1B) got introduced to offer additional tax-saving up to Rs. 50,000 over and above Sec 80C.

If you are already taking advantage of these two sections for saving your taxes through NPS contribution, then Sec 80CCD(2d) is your new tax-saving opportunity.

Save Extra Tax with Corporate-NPS Under Sec 80CCD(2)

To save extra tax with Corporate-NPS, you need to ask your company to contribute every month 10% of your basic salary into NPS under section 80CCD(2). Then you can claim a tax deduction on the contributed amount. For example: if your employer puts Rs 5000 per month or Rs. 60,000 annually in your NPS account and if your tax liability is 20%, then you can save tax up to Rs 12,000 (approximately.)

For this, you can just ask your employer to revamp your salary structure, where a specific amount of your salary can be contributed towards Corporate-NPS. This will reduce your in-hand salary somewhat but will strengthen your retirement investment and will save you some extra tax.

You might feel like overlooking this opportunity because the tax-saving time has just passed and there is still 1 year left for it. But, doing the last minute tax-planning is one of the most wrong financial decisions that majority of Indian tax-payers do. If you start an early tax planning, the month of April is the right time, you can best utilize your time to explore the investment options available to you, and accordingly, you can pick-up the products that not just give tax benefits but also accelerate your wealth creation.

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