NPS Tax Saver ET

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ou are here: Home Personal Finance Tax Savers Tax News

FEB, 2012, 08.00AM IST, ET BUREAU

You can save additional tax through NPSStory Comments

Tax | Section 80C and 80CCF | PPF | New Pension Scheme | Income TaxRead more on

Many taxpayers feel that the Rs 1.2 lakh tax-savinginvestment limit under Section 80C and 80CCF is toolow. However, a handful of employers, includingBangalore-based Wipro Technologies, is allowing itsstaff to claim more tax deductions by investing underthe newly introduced Section 80CCD(2).

Under the new section, up to 10% of an employee'sbasic salary put in the New Pension Scheme is taxdeductible. This means a person with an annual basicsalary of Rs 5 lakh (nearly Rs 40,000 a month) can getan additional deduction of Rs 50,000 if his employer

puts this money on his behalf in the NPS. Assumingthat he will have other income (bonus, specialallowance, interest, etc), which puts him in the 30%tax bracket, the NPS investment under Section80CCD(2) will reduce his tax liability by almost Rs15,000.

This clause was introduced in the previous budget byamending the rules regarding the deduction ofcontribution made on behalf of the employees. Tillthen, only the contribution towards a recognisedprovident fund, approved superannuation fund orgratuity fund were allowed as a business expense.

The only glitch with the new clause: this is one investment that a taxpayer can't make on his own. It is themployer who needs to deposit the amount on his behalf. For this, the company has to be convinced tonclude the benefit in its emolument package.

Despite the enormous tax-saving potential of the provision, very few corporate houses have offered theenefit to their employees. "There is little awareness about this clause. Not many people believe that theirmployees can save more tax through this avenue," says Sudhir Kaushik, co-founder and CFO of tax filingortal Taxspanner.com. Kaushik and his team, who advise companies and individuals on tax-efficienttrategies, are trying to convince companies to avail of this opportunity. HCL Tech is another large corporate

house that is contemplating the inclusion of Section 80CCD(2) investment in its pay structure.

f your company does not offer you this benefit yet, it's time to ask for it in your forthcoming appraisal. In thehighest 30% tax bracket, it will enhance your increment by 3% of your basic salary. All your employer needso do is rejig the salary structure by reducing any of the fully taxable emoluments (special allowance,erformance-linked bonus, etc) and adding this new head in your total CTC.

Maximum 80 D Tax BenefitsPolicy that offers complete health cover & Tax Savingsfrom ICICI. : HealthInsurance-icicilombard.com

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