Your salary structure consists of various components. The taxation of each component varies as per the prevailing tax rules and regulations. Most employers offer employees some flexibility to structure some portion of their total pay packet. This is where your knowledge comes in handy. If you can manage your salary wisely, you can strike a delicate balance between your take-home pay and your overall tax liability. This article has some simple tips to help you streamline your salary and make the most of your benefits.

#1: Opt for House Rent Allowance:

#2: Opt for Holiday Travel Concession:

Let’s say you love to travel and have significant domestic travel every year. In that case, you can allocate a specific portion of your salary for this component. You must provide your employer with travel and lodging bills to claim this amount as tax-exempt. An important point to note is that the LTA concession is applicable only on domestic travel and for the employee and his/her family members. There will be exemption on any two journeys in a block of 4 years. You should also read your employer’s policy on LTA for any additional guidelines/conditions. Also, make sure you declare this amount in the investment declaration at the beginning of the year. This will help in reducing the TDS amount deducted from your monthly salary and will result in higher salary.

#3: Claim Reimbursement:

Reimbursement is a perfect way to reduce the tax liability on your salary income. Basically, when you incur some official expenses like telephone, hotel, vehicle etc., you can present the bill to the employer. This will make the amount in your hands tax free. The only side effect of this approach is that your monthly take-home pay will be lower to the extent that you opt for these reimbursements. Employers generally allow specific time windows at different times of the year to allow employees to submit their bills. For the amount backed by the bill by the end of the year, the employer will deduct applicable tax and pay the amount as part of your salary.

#4: Investment in National Pension Scheme (NPS):

Suppose you choose the old tax regime. In that case, investment in NPS is also eligible for additional tax deduction of Rs 50,000 under section 80CCD (1B) of the Income Tax Act. This is over and above the tax deduction limit of INR 1.5 lakh under section 80C. For a person falling in the 30% tax bracket, this means an additional tax saving of around INR 15,000 per year. The main advantage of investing in NPS is that it is a very low cost and efficient investment. You get a variety of asset allocation and fund options to choose from. It is also a true-blue retirement product that systematically helps you plan for your most important financial goal, i.e. retirement.

#5: Don’t Miss Out on Perks:

As you move up the hierarchy, perks become more and more important in the pay structure. The company may provide some employee benefits like car on lease, mobile phone, educational loan, medical facilities etc. There are specific tax rules for the taxability of each benefit. For example, you can opt for a meal voucher as part of your salary. As an employee, you are entitled to tax-free INR 50 per meal. However, note that this benefit is not available if you choose to be governed by the new tax regime. A wise restructuring of perks can be a win/win situation for both the employer and the employee. For the employee, composition can mean a big difference in terms of the net taxability of salary income. This initiative can act as a differentiator for the employer to attract and retain high quality talent in the organization.

conclusion

Beyond a point, an employee cannot control the amount of CTC that she earns at a given point in time. However, he has every right to take advantage of the salary structure opportunities offered by the employer to reduce the tax liability. The employee can use this savings to invest in the right avenues and build up a significant corpus of wealth over time. At the same time, he also needs to upgrade his knowledge about the ever-changing tax laws. This will help him stay one step ahead of the game and seize any new tax-saving opportunities.