Restructuring your salary can maximise your take-home amount while minimising the taxes you pay. One way to achieve this is by opting to modify the composition of your salary package at the beginning of the financial year. If your employer doesn’t give the option, you can always request the same.
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By restructuring your salary in a tax-efficient way, you can ensure that you keep more of your hard-earned money and pay less in taxes. You can make your salary structure more tax efficient just by availing certain exemptions and deductions that are already given in the Income-tax Act.
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Yeeshu Sehgal, Head of Tax Market, AKM Global, a tax and consulting firm explained to Business Today how a few important exemptions and deductions a taxpayer should keep in mind while restructuring salary.
1) Telephone and Internet bills
All the reimbursements for the actual telephone and internet bills are not taxable. The bills are to be kept by the employees for availing the exemption.
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2) Conveyance expenses
Any conveyance allowance granted to meet the expenditure incurred by an employee to perform their duties is exempt provided that the conveyance is not provided by the employer or is owned by the employee. However, if an employee uses a company’s car and the company repays the driver’s wage,
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insurance, maintenance and fuel expenses, the taxable value is Rs 2,700 per month (cars with cubic capacity within 1.6 Litre) or Rs 3,300 per month (cars with engines over 1,600 cc) (car with cubic capacity exceeding 1.6 Litre). In case an employee owns a car, an exemption of Rs 2,700 per month or Rs 3,300 per month in respect of the driver’s salary, maintenance and fuel expenditure is paid and refunded by the employer.
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3) Meal Allowance
Another benefit which can be incorporated as a part of salary package is a meal allowance which is not taxable upto Rs 50 per meal. This is not widely used though.
4) Standard deduction
Every employee is entitled to claim a standard deduction of Rs 50,000 from the gross salary and can be claimed as an exemption.
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5) Leave Travel Allowance
Leave Travel Allowance (LTA) is allied if claimed twice in a block of four years for going anywhere in India by the shortest route possible along with family. Post covid, the travel has opened again and hence, the importance of including leave travel allowance in the salary structure has arisen again.
6) House Rent Allowance
House Rent Allowance (HRA) should also be added to the salary package as HRA exemption can also be claimed as per the act and HRA exemption is allowed least of the below :
- Actual HRA received by the employee
- 40 per cent of the salary for a non-metro city or 50 per cent of salary if the rented property is in metro cities like Mumbai, New Delhi, Kolkata, and Chennai
- Actual rent paid should be less than 10 per cent of salary
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7) Contribution to Provident fund contributions and National Pension Scheme
Additionally, the deductions on account of provident fund contribution to the maximum limit of Rs 1,50,000 is also available u/s 80C of the act and contribution to National Pension Scheme u/s 80CCD of the Act.
