Reorganizing your compensation might increase your take-home pay while lowering your tax burden. Making the decision to change the structure of your compensation package at the start of the fiscal year is one approach to do this. You may always request the same thing if your company doesn’t provide the choice.
You may make sure that you keep more of your hard-earned cash and pay less in taxes by restructuring your paycheck in a tax-efficient manner. Simply by taking use of specific exclusions and deductions that are already provided in the Income-tax Act, you may make your pay structure more tax effective.
A few significant exemptions and deductions that a taxpayer should be aware of while rearranging salary:
Internet and Telephone Bills
Not all reimbursements for the actual telephone and internet bill would be liable for tax. The employee withheld the bills in order to claim the tax exemption.
Any conveyance allowance provided to the expenditure made through the employee to do their work would get exempted given that the conveyance would not be allowed via the employer or would be owned by the employee.
But when the employee utilised the car of the company and the company repays the salary of the driver, insurance, maintenance, and fuel expenses then the taxable value would stand at Rs 2,700 per month (cars with cubic capacity within 1.6 ltr) or Rs 3300 per month (cars with engines over 1,600 cc) (car with a cubic capacity exceeding 1.6 Litre).
For the case when the employee owns a car then the exemption of Rs 2700 per month or Rs 3300 per month for the driver’s salary, maintenance, and fuel expenditure is paid and refunded via the employer.
Standard Tax Deduction
A standard deduction of Rs 50,000 is been qualified to get claimed by every employee from the gross salary and could get claimed the same as an exemption.
House Rent Allowance(HRA)
The HRA should be included in the salary package as well since, according to the legislation, HRA exemption is permitted in the event that the least of the following occurs:
- Actual House Rent Allowance(HRA) obtained via the employee
- 40% of the salary for a non-metro city or 50% of the salary if the rented property is in metro cities like Mumbai, New Delhi, Kolkata, and Chennai
- Actual rent paid must be less than 10% of the salary
An additional advantage that could be started as a part of the salary package is the meal allowance that does not levy tax up to Rs 50 per meal. It does not in used widely.
Leave Travel Allowance(LTA)
Leave Travel Allowance (LTA) is associated if claimed twice in a four-year period for travelling anywhere in India through the quickest route available with family. Following covid, travel has reopened, and hence the significance of integrating leave travel allowance into the compensation structure has arrived again.
Contribution to National Pension Scheme and Provident Fund
On the basis of the provident fund contribution the deductions to the max limit of Rs 1,50,000 would be available under section 80C of the act and contribution to the National Pension scheme u/s 80CCD of the act.
Tips for Salary Restructuring to Reduce Income Tax in a Table Format
|Mobile and internet bills reimbursement||Bill reimbursement for mobile and internet services.|
|Meal Allowance||Not taxable upto Rs.50 Per Meal|
|Transportation Fees||An employee’s actual expenses in performing his/her duties are exempt if the conveyance was not provided by his/her employer or owned by him/her|
|Driver’s wage, maintenance, insurance, and fuel expenses||Depending on the ownership of the car, the taxable value is 2,700 to 3,300 per month|
|Standard Tax Deduction||INR 50,000|
|Reimbursement of Leave Travel Allowance (LTA)||If you claim twice in four years, you are exempt|
|House Rent Allowance (HRA)||HRA exemption is permitted least of the below:
|Contribution of EPF||INR 1.5 lakh claimed as a tax deduction|