There are many components to your company salary that also vary with tax rules. Taxes for each component depend on current tax policies. You have some freedom in deciding how your salary is structured at work. Employers usually offer a number of different to you at work and you may even be able to negotiate for certain benefits. Salary structures can be tricky, but this article provides a breakdown of all the key considerations. With these, you’ll know what factors to take into account (like take-home pay and tax liability) in order to create the best one for you.
#1: Opt for House Rent Allowance: Suppose you are living on rent and receiving HRA as part of your salary. In that case, you must provide rent receipts to your employer to claim a tax deduction on this income component. As per the Income Tax Rules, the least of any of the following is exempt
- 50% of ((Basic salary x 1.25) + Dearness allowance) – applicable in a metro city or 40% of (Basic salary x 1.25) + Dearness allowance – applicable in a non-metro city
- Actual rent paid minus 10% of (Basic salary + Dearness allowance)
- Public-sector HR professionals receive their salaries and benefits from the government
We recommend that you consult an accountant if this condition applies to you.
#2: Opt for Leave Travel Concession: If you travel a lot and love to spend a chunk of your salary, you can do so by allocating a specific amount towards your travels. If you want to claim for tax-free LTA, you will need to demonstrate the relevant paperwork to your employer. Important information is that the ETR concession applies only to domestic travel and for your family members. We won’t take into account any two journeys in a block of 4 years. Additionally, you should read up on your employer’s policy on LTA for additional guidelines & conditions.. It’s also important to mention that declaring the amount up front will actually result in a higher take-home salary. This is because the tax office calculates taxes based on your declared salary, meaning that you pay less each month
#3: Claim reimbursements: Reimbursements are a great way to manage your tax liability. Let’s say you make certain types of purchases for work-related activities, such as phone bills, transportation, etc. If you’re able to produce invoices for these things, then your employer can give back the cost of these things – less any expenses incurred on behalf of the company – to reduce. This approach will make you free from making monthly payments. However, it might affect your take home pay which will be decreased by the same amount of monthly reimbursements. Employers usually allow specific time windows at various times of the year to allow employees to submit their bills. For any unpaid expenses not supported by a bill by the end of the year, employers should deduct tax and pay out what remains.
#4: Investment in National Pension Scheme (NPS): Opting for the old tax regime could get you INR 50,000 in deductions if you invest in NPS. Beyond the monthly INR 1.5 Lakhs limit under Section 80C, this will be extra savings of around INR 15,000 in taxes per year for a person who has an annual income of Rs 2.75 Lakhs that falls into the 30% tax bracket. A big advantage of investing in NPS is that it’s really low-cost and easy to set up. You can also get a lot of options to choose from when it comes to asset allocation and funds. This product is designed for retirees who want to plan their future.
#5: Don’t miss the perquisites: As you climb up the hierarchy & earn a higher wage, the benefits offered by your company will increase. For example, they might include a leased car, mobile phone, educational loan, medical facilities etc., and there are specific tax rules for these perks. For example, you can choose to opt for meal vouchers as part of your salary. As an employee, you are entitled to INR 50 per meal tax-free. However, you will lose this benefit if your business is restructured in accordance with the new tax regime. Intelligent planning of fringe benefits can be advantageous for both the employer and employee. Structuring means a huge difference in terms of employee tax. It’s a differentiator-employers can attract & retain talent by adopting this policy.
Conclusion Beyond a certain point, an employee cannot control the amount of CTC that she earns over time. However, she has every right to take advantage of salary structuring opportunities that the employer provides to lower her overall tax burden. This is beneficial for employees because they can use the money they save to work on other aspects of their life and create a substantial retirement fund. They should also focus on keeping up to date with tax laws that are always changing. This will help her stay one step ahead of the game and grab any new tax-saving opportunities as they arise.
0 Comments