Tax-saving ideas: How to restructure your salary to reduce income tax outgo by more than Rs 1 lakh
It is a paradox that though companies are forever trying to cut costs, many avoid taking steps that can enhance the income of their employees without adding to the wage bill. If companies restructure their compensation packages by replacing taxable emoluments with some tax-free perks, they can lower the tax liability of their employees. “The salary structure plays a critical role in determining the tax liability of an individual. Many tax deductions and exemptions are not available under the new tax regime, but certain tax-free allowances can be availed of even under the new regime,” says Avinash Godkhindi, Managing Director and CEO of Zaggle Prepaid Ocean Services.
There are several such tax-exempt allowances, including food coupons and reimbursement of expenses on fuel and travel, newspapers and periodicals, phone and Internet (see graphic). The taxable portions of the salary, such as the special allowance, can be reduced to make place for the tax-exempt allowance. Taxpayers who pay a low rent can consider reducing the house rent allowance (HRA) as well. The HRA exemption is linked to the basic pay and is the least of the following three options: the actual HRA received, 50% of basic pay (40% in non-metros), and actual rent paid minus 10% of basic pay. If you pay a high rent and can claim exemption, keep it high, but if the rent is low, replace it with some other allowance. Taxpayers who live in their own houses and don’t pay rent can also reduce the HRA.
Some of the tax-free emoluments have prescribed
