Salary Structure Which Can Minimise Your Tax Burden
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We all salaried always thinking how i can save tax. What are the exemptions are available & can get benefit. First we have to think what are the elements includes in Salary, it includes Basic Salary, Bonus, Wages, Pension, Fees, Commission, Gratuity, Leave Encashment of salary,, Advances & Arrears, profit in lieu of salary, Allowances & perquisites etc. Salary income is taxable in the hand of of an individual in the year of receipt or earning of salary income, whichever is earlier. Here are list of some safe components of your salary structure which can minimise your tax burden & help you plan your salary structure.
1. House Rent Allowance (HRA) : If you live in a rented accommodation and are entitled to HRA the same is exempt to the extent of least of the following, 50 % of the basic Salary, Excess of rent paid over 10% of basic salary, actual HRA received. However, you cannot take benefit of HRA, if you live in a rent free accommodation or live with your family or in your own house.
2. Conveyance Allowance : This allowance is paid for commuting between home and office is exempt upto Rs.800.00 per month.
3. Provident Fund : Under section 80C, provident fund contribution deducted from the employees account is exempted from tax up to an amount of Rs. 1 lakh or 12% of the employee’s salary. Taxability of Provident Fund -Recognized, Unrecognized & Statutory.
4. Children’s Education Allowance is exempt up to Rs 100 per month per child up to a maximum of two children. Also, Rs. 300 per month per child up to two children is allowed if they are in hostel.
5. Leave encashment while in service is taxable, but is exempt at retirement, subject to prescribed limits and conditions. If leave encashment is done on the termination of employment through superannuation, then it will be exempt from tax up to certain limits.
6. The value of any travel concession or assistance received by or due to you from your employer for yourself and your family in connection with proceeding on leave to any place in India subject to prescribed conditions. An allowance to the extent actually incurred to meet the cost of travel on tour or on transfer, expenses incurred on conveyance in the performance of official duties, expenditure on helper engaged in the performance of duties, daily charges on account of absence from normal place of duty on tour are exempt.
7. Reimbursement of health insurance premium by your employer for you and your family is exempt.
8. Actual expenditure incurred on your medical treatment or any of your dependents is exempt up to Rs 15,000 per annum as medical reimbursement subject to provision of bills. If you are paid a medical allowance instead of reimbursement, the same is fully taxable.9. In case you are entitled to a free or concessional company-provided accommodation, the same would be valued based on stipulated conditions.
10. If the company provides you a car for personal and official purposes and reimburses the fuel, insurance, maintenance and driver’s salary, the taxable value shall be: in case the cubic capacity of the car is less than or equal to 1.6 litres – Rs 1,800 per month (plus Rs 900 for the driver) and in case the cubic capacity of the car is greater than 1.6 litres – Rs 2,400 per month (plus Rs 900 for the driver).
11. In case you use your own car for official and personal purposes and the company reimburses the running and maintenance cost, the taxable value shall be: in case, the cubic capacity of the car is less than or equal to 1.6 litres – actual amount met or reimbursed by the employer less Rs 1,800 per month (plus Rs 900 for the driver) and in case the cubic capacity of the car is greater than 1.6 litres – actual amount met or reimbursed by the employer less Rs 2,400 per month (plus Rs 900 for the driver).
12. The reimbursement of telephone expenses including a mobile phone actually incurred by you on behalf of your employer is not taxable in your hands. Telephone facility received by Employee at his residence provided by employer is also not taxable in hand of employee as against Telephone Allowance.
13. Dearness allowance to be added as a part of your retirement benefits as it will reduce your tax incidence with respect to HRA, provident fund, gratuity, etc.
14. The reimbursement of health club, sports club membership fees and similar facilities provided uniformly to all employees would not be taxable in your hands.
15. Free meals provided to you through paid vouchers, not transferable and usable only at eating joints to the extent of Rs 50 per meal are safe.
1. House Rent Allowance (HRA) : If you live in a rented accommodation and are entitled to HRA the same is exempt to the extent of least of the following, 50 % of the basic Salary, Excess of rent paid over 10% of basic salary, actual HRA received. However, you cannot take benefit of HRA, if you live in a rent free accommodation or live with your family or in your own house.
2. Conveyance Allowance : This allowance is paid for commuting between home and office is exempt upto Rs.800.00 per month.
3. Provident Fund : Under section 80C, provident fund contribution deducted from the employees account is exempted from tax up to an amount of Rs. 1 lakh or 12% of the employee’s salary. Taxability of Provident Fund -Recognized, Unrecognized & Statutory.
4. Children’s Education Allowance is exempt up to Rs 100 per month per child up to a maximum of two children. Also, Rs. 300 per month per child up to two children is allowed if they are in hostel.
5. Leave encashment while in service is taxable, but is exempt at retirement, subject to prescribed limits and conditions. If leave encashment is done on the termination of employment through superannuation, then it will be exempt from tax up to certain limits.
6. The value of any travel concession or assistance received by or due to you from your employer for yourself and your family in connection with proceeding on leave to any place in India subject to prescribed conditions. An allowance to the extent actually incurred to meet the cost of travel on tour or on transfer, expenses incurred on conveyance in the performance of official duties, expenditure on helper engaged in the performance of duties, daily charges on account of absence from normal place of duty on tour are exempt.
7. Reimbursement of health insurance premium by your employer for you and your family is exempt.
8. Actual expenditure incurred on your medical treatment or any of your dependents is exempt up to Rs 15,000 per annum as medical reimbursement subject to provision of bills. If you are paid a medical allowance instead of reimbursement, the same is fully taxable.9. In case you are entitled to a free or concessional company-provided accommodation, the same would be valued based on stipulated conditions.
10. If the company provides you a car for personal and official purposes and reimburses the fuel, insurance, maintenance and driver’s salary, the taxable value shall be: in case the cubic capacity of the car is less than or equal to 1.6 litres – Rs 1,800 per month (plus Rs 900 for the driver) and in case the cubic capacity of the car is greater than 1.6 litres – Rs 2,400 per month (plus Rs 900 for the driver).
11. In case you use your own car for official and personal purposes and the company reimburses the running and maintenance cost, the taxable value shall be: in case, the cubic capacity of the car is less than or equal to 1.6 litres – actual amount met or reimbursed by the employer less Rs 1,800 per month (plus Rs 900 for the driver) and in case the cubic capacity of the car is greater than 1.6 litres – actual amount met or reimbursed by the employer less Rs 2,400 per month (plus Rs 900 for the driver).
12. The reimbursement of telephone expenses including a mobile phone actually incurred by you on behalf of your employer is not taxable in your hands. Telephone facility received by Employee at his residence provided by employer is also not taxable in hand of employee as against Telephone Allowance.
13. Dearness allowance to be added as a part of your retirement benefits as it will reduce your tax incidence with respect to HRA, provident fund, gratuity, etc.
14. The reimbursement of health club, sports club membership fees and similar facilities provided uniformly to all employees would not be taxable in your hands.
15. Free meals provided to you through paid vouchers, not transferable and usable only at eating joints to the extent of Rs 50 per meal are safe.
16. Uniform
Allowance - Uniform
allowance is not considered as Perquisite U/s. 10(14). This however needs to be
a uniform not a civil dress.
17. Asset assistance given by your employer. For example, provision
of a computer or laptop owned by the company and provided to you or any member
of your household is not taxable in your hands.
18. Professional Tax: If a professional tax is being deducted from
the employee’s salary, it can be reduced from the annual salary income to
arrive at the taxable salary.
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