How To Maximise Tax Saving By Restructuring Your Salary Break-Up

It is very important to understand the components of your salary breakup as their restructuring can help you save tax and increase your take home.

If you are hands-on with your salary breakup components, then their restructuring to save tax and enhance your take home becomes easy.  One always tends to plan the salary in a manner that reduces tax liabilities. Generally, the salary structures are put in place by your employer with only a few giving you the choice to restructure it as per your requirements.

Hence, it makes absolute sense to understand your salary structure and discuss it in detail with your HR to get a favourable salary break-up before you formally join the company.

In this article, we’ll analyse a few salary components that form part of your salary structure and how their restructuring can help reduce tax liability and increase your take home.

Basic salary

This is the core component of your salary and is fully taxable. If you are a newly employed individual, you may expect a higher take home as tax saving is not a priority. This can be achieved by opting for a lower Basic Pay and seeking an adjustment in other fixed allowances such as food, conveyance, medical, etc. which are taxed at a lower rate. If you are a senior-level employee and have tax savings as a priority then you may ask for a higher basic pay to get additional tax benefits.

HRA

House Rent Allowance is another component of your salary. It can be used wisely to maximise tax savings. You can claim HRA if you are living on rent and are a salaried professional. But if you are living on rent and paying EMI on a loan on another property even in the same city, you can claim tax benefit on both. Besides, if you are living with your parents in a property owned by them, you can claim HRA by paying rent to your parents.

Bonus 

This also forms a part of the salary structure. Usually, the employer deducts tax before handing over the bonus to you. What you can do in such a situation is that you can show your tax-saving investment details to your employer and claim higher bonus. If not, then you have to claim a refund at the time of filing the return. But this is a tedious process and must be avoided.

Perquisites In Salary Break-up

Perquisites are perks or additional benefits given to the employees. Some perquisites are taxable, while some are not or some are given tax benefit up to a certain limit. Hence, you must ask the employer to include tax-savings perquisites in the salary component to reduce your tax burden. For example, purchase of books and periodicals are tax-exempt to the actual expenditure incurred. It is same for mobile and telephone reimbursement. Facilities such as health club, sports are also tax exempt if provided uniformly to all employees.

Retirement Contributions 

Almost every company now provides for provident fund options to their employees to save for retirement. These PFs are also beneficial in tax savings. Both employer and employee make a contribution towards this fund. Employer’s contribution is exempted up to 12 percent of salary and employee’s contribution is available for tax deduction up to Rs 1.5 lakh u/s. 80C. Therefore, you can negotiate with your employer to get the required ratio for this retirement corpus so that you can avail maximum tax benefits.

Leave Travel Allowance

It is another component of the salary that can lower your tax burden. But Leave Travel Allowance applies to travel within India only. You can avail this allowance to lower your tax burden. You can claim actual travel cost under Section 10 (5) twice in a block of four years.

Hence, it is vital to discuss your salary break-up with your employer to avail maximum tax benefit.

BankBazaar.com is a leading online marketplace in India that helps consumers compare and apply for Credit Card, Personal Loan, Home Loan, Car Loan, and insurance.