Maximising your take-home salary is a goal for almost all salaried employees, and figuring out a tax-efficient pay structure can significantly reduce the tax burden. A few components in the cost-to-company (CTC) structure exempting taxes are here.
1. House Rent Allowance (HRA): The employer’s provision for covering the accommodation expenses of the employee, known as HRA, can be either partially or fully exempt from taxation. This component of your salary aids in covering the rent for your current residence. HRA must be included in your salary package to qualify for this tax deduction.
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The lowest of the following amounts will be tax-free:
2. Leave Travel Allowance: An employer grants the Leave Travel Allowance (LTA) to cover travel costs associated with a journey. This journey may include your family and can extend to any destination within India. To claim it, you must provide travel documentation to your employer. However, this exemption is applicable only to the shortest distance travelled during the trip, whether by air, rail, or recognised public transport. This perk is applicable for two journeys undertaken within a four-year calendar block. The ongoing block spans from the calendar years 2022 to 2025.
3. Meal coupons: Food coupons like Sodexo or other meal vouchers are exempted from taxes up to Rs 26,400 annually. Employers often provide food allowances by offering meals during working hours or through paid vouchers. For example, if these vouchers are tax-exempt, up to Rs 50 per meal, considering 22 working days a month and two meals per day, you can claim an annual deduction of Rs 26,400.
4. Employee Provident Fund (EPF): Employee’s contribution to EPF is partially tax-deductible, while the employer’s contribution and interest earned are fully exempt. Contributions made towards EPF deduction are eligible for a tax deduction of up to Rs 1.5 lakh under section 80C. Currently, 12% of your basic salary and dearness allowance (if applicable) are invested in EPF. Contributing to EPF is advisable as the interest earned on this investment is tax-exempt, provided certain conditions are met.
5. Mobile bill reimbursement: Many employers reimburse the bills for work-related calls and internet usage, and these reimbursements are tax-free. This encompasses telephone expenses, including a broadband internet connection, covered by the employer. Additionally, it includes expenses related to postpaid mobile phones and broadband services you incurred. Therefore, you can claim reimbursement for these expenses under the employer’s reimbursement scheme.
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6. Fuel reimbursement: Employees can request reimbursement from their employer to cover petrol or diesel expenses for their car. However, not all employees are eligible for this reimbursement. Typically, it is provided to middle and senior management, as well as sales managers, who often engage in client-facing roles.
7. Children’s education allowance: A salaried employee can have a tax-free education allowance for up to two children to cover their school fees. A deduction of Rs 100 per month per child is permitted for your child’s education expenses. Additionally, Rs 300 per month per child is allowed to meet hostel expenditure. You can avail of these deductions for a maximum of 2 children.
8. Gift voucher: Gifts provided by an employer are considered tax-free in your hands if their aggregate value does not exceed Rs 5000 annually.
9. Book and Periodicals: To enhance your skills in your chosen fields, you may need to invest in books, periodicals, newspapers, and professional journals. In such instances, these expenses are tax-exempt under the category ‘Books and Periodicals.’ However, to qualify for this exemption and avail of its benefits, you must submit evidence of the expenses incurred on books and periodicals.
10. Uniform allowance: This encompasses the allowance provided by the employer to cover the cost or upkeep of uniforms worn during employment duties.
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11. Standard Deduction: Budget 2018 reintroduced the standard deduction of Rs. 50,000 from the gross salary, reducing the tax liability.
12. Company leased car: Car lease finance, also known as vehicle leasing, is a financial arrangement where an individual or business (the lessee) rents a vehicle from a leasing company or financial institution (the lessor) for a specified period of time. Instead of owning the vehicle outright, the lessee pays regular lease payments to the lessor for the right to use the car.
Car lease finance can offer advantages such as lower monthly payments than buying a car outright, flexibility in car choice and lease duration, and potential tax benefits for businesses and salaried individuals.
Making the most of these tax-free allowances in your CTC structure can positively impact your net take-home salary and overall remuneration. With careful planning, salaried employees can significantly minimise their tax liability and maximise their in-hand salary.