Below article might be useful to readers in India as frequently, questions on salary optimization are asked by assessees in India (Jan 011) Structuring your salary to maximize take home salary
We all know the numbers on the CTC (Cost To Company)but the take home is vastly different. This is mostly due to one single component- Taxes. Taxes are applicable on most aspects of our salary. There are limited ways we can save on taxes by way of deductions- Most used sections under the IT Act, 1961 are- 80C, 80D, 80G and Sec 24. But, did you know we can save much more on taxes by structuring our salary better?
Below are few components which can be used to reduce the tax liability on salary income:-
Allowances/ Reimbursements- Allowances are normally paid irrespective of the employee actually incurring them. These are fully taxable if no bills are provided. However, if the expenses are incurred actually and bills provided, they are not taxable up to a specified limit under each head.
o The actual amount of HRA received. o 40% of salary. This increases to 50% if you are renting out the house in Delhi, Mumbai, Chennai or Kolkata o Rent paid minus 10% of salary (basic component + dearness allowance) o Salary for the purpose of HRA means: Basic + D.A (only if it is forming part of salary for retirement benefits) + commission (if it’s a fixed % of sales turnover).
Disclaimer – Above is only an attempt to give readers an overview of tax planning in salary. It is a very vast subject and cannot be examined in just few weeks. In fact, books are published only on tax planning on salary income. |
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