In India, everyone is in need to reduce the tax burden. Here the salaried people suffers more as the salary is received through bank so the ways of tax reduction gets decreased. In this article, we will have a look on some of the ways which could help the salaried people to reduce the tax on their income.
The Income Tax offers many more new allowances or incentives to reduce the tax liability specially for the salaried people. These are the incentives apart from the act 80C. Here are 12 smart ways for helping you to reduce the taxes or liability to pay the tax.
Many people try to make new investments at the end of the financial year so that they can minimize their tax liability. But these people are lack of knowledge. They do not know that the Income Tax Act offers many new allowances.
Understanding the scheme or ways that now to save the taxes on salary is very helpful. So, this the article which will provide you the information about:
- How to save tax legally on salary income
- That how to change your salary structure
Some Ways of Reducing Tax Liability on Salary are:
The above-mentioned allowances and perquisites are exempt from scope of the income tax. These can only be claimed by any person if these allowances and perks are a part of his/ her salary structure. So, you can reduce your taxes in such a huge way by restructuring your salary and also by including these allowances. But for this, rework of your salary structure is compulsion.
How to change your salary structure:
- The employee may ask his employer for House Rent/Payroll Department to restructure his salary.
- Most of these allowances can only be claimed via the employer, so make sure that you submit all your bills and receipts on proper time as may be prescribed.
With the above-mentioned tips for allowances and perks, one could reduce the taxable income and higher the take of home income.
List of some benefits that can lower tax outgo:
- Medical reimbursement: It means reimbursement of medical expenditure of employees or dependants. The maximum exemption is Rs.15,000. https://www.alerttax.in/tax-benefit-employee-medical-reimbursement-rs-15000/
- Level travel allowance: These are the fare expenses for travelling in India. The maximum amount of exemption allowed is actual amount of expenditure or the amount provided in CTC, whichever is lower.
- Conveyance Allowance: These includes the allowance received for the distance between office and place of residence. The maximum amount exempted is Rs.1600 per month.
- Uniform Allowance: Expenses for purchase and maintenance of official uniform is included under the tax benefit of this. Lower of actual expenses and allowance received will be exempted.
- House rent allowance is allowance received from the employer for Rent of the House near by the place of work which is written as HRA.
Least of the following will be exempt:
- Actual HRA
- 50% of (Basic + Dearness Allowance) if metro cities otherwise 40%
- Total Rent paid- 10% of Basic salary
- Children Education Allowance: This includes Education expenses of the children. The maximum amount of exemption is Rs.100 per month per child max for 2 children.
- Children Hostel Allowance: It is the expenses of the Hostel in which children live. The maximum amount of exemption is Rs.300 per month per child max for 2 children.
- Mobile reimbursement and Residential Telephone bill reimbursement: It is for the telephone expenses for official use. The amount exempted is lower of amount provided in CTC or actual bill.
- Books and Newspaper Allowance: It is for expenses on books, Newspapers, Magazines etc. Actual expenses incurred are exempt.
- Fuel Reimbursement: The purpose of expenses of fuel, Drivers salary are covered here. The amount exempted is Rs.1800 per month in case the cubic capacity of car is 1.6 ltr or Rs.2400 per month along with Rs.900 per month for driver’s salary. For complete details click here. https://www.alerttax.in/taxability-when-car-is-provided-by-employer/
- Food coupons: These are provided by the company itself. The amount of exemption is RS.1100 per month (Rs.50 per day for 22 working days)
- Club Facility: Expenses for club facility are incurred for the payment of fees to take the corporate membership in different clubs. Actual expenses are exempted.
To lower your tax liability in FY 2017-2018, there are some example below that how you can restructure your salary:
We have explained below that how one can alter or restructure his salary to get the tax benefit by reducing your taxes. Here is an example in which basic salary of the person have not been changed because with the change in basic salary also effect the contribution that employee and his employer make in EPF for building a retirement corpus as it is not good to lower the EPF. In the example, we have assumed LTA taxable before and after CTC twist, as because LTA can only be claimed two times in a block of four years as per IT Act. HRA is taken to be claimed after CTC twist assuming that rent paid per month by the employee is Rs.15,000 and the employee is living in one of the metro cities i.e. Mumbai. So, don’t forget that to whom you are paying rent (example Mother), have to include rent income in their Income tax return.
To enjoy these tax benefits, one has to talk to his/her HR or pay roll department to restructure his/ her salary components.
|Residential Telephone Bills||0||7,800|
|Taxable salary||CTC||CTC Twisted|
|Total Taxable salary||5,20,000||3,24,500|
|Tax payment||CTC||CTC Twisted|
|Total Tax (Rounded off)||16,700||1,260|
As you see earlier tax payable was Rs.16,700. It has been brought down to 1,260 after restructuring. So, to restructure your CTC and reduce the tax payment, you can use any of the above components mentioned in the above table. A person must try to claim 80C deduction in full so that the tax liability of the person can be minimized. The contribution to the person to EPF is eligible for deduction under section 80C.