Section 80C restrict is exhausted, how can I nonetheless save extra tax?

I’m 33 years previous and work for a big multi-national firm (MNC). My wage is ₹1,28,000 a month, however an enormous chunk goes into tax. I’ve already invested ₹1,50,000 in Provident Fund, PPF and life insurance coverage. How can I save extra tax?

—Name withheld on request

The ₹1.5 lakh funding restrict below Section 80C could be very low and is rapidly exhausted. If you wish to save extra tax, you may contribute to the National Pension System (NPS). The NPS is a low-cost scheme that helps you save for retirement and provides a further deduction of as much as ₹50,000.

Investors can select from seven pension fund managers and determine their very own asset combine. Since you might be younger, it’s best to put the utmost in fairness funds and the remainder in debt. If unable to determine on the asset combine, you may go for the Lifecycle choice whereby your age will decide the allocation to equities and debt, and frequently change it yearly as you get older.

While the NPS is an effective technique to save for retirement and scale back tax, bear in mind sure options of the scheme. The scheme comes with a really lengthy lock-in until your retirement at 60. You can’t withdraw the cash earlier than retirement, besides in sure emergency conditions. This makes the scheme very illiquid.

Even on the time of maturity, an investor can withdraw solely as much as 60% of the corpus. Though this 60% withdrawal is tax-free, the remaining 40% is mandatorily put in an annuity to earn a month-to-month pension. This month-to-month pension is totally taxable as revenue. The silver lining is that one’s revenue comes down after retirement so the pension doesn’t enhance the tax legal responsibility an excessive amount of.

Another good characteristic is that traders can change their asset combine relying on their studying of the market. These switches don’t result in any tax incidence. They also can shift from one pension fund supervisor to a different with out incurring any tax incidence.

Raj Khosla is Managing Director at MyMoneyMantra.com.

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