Restructure Your Salary Break-Up to maximize the Tax Savings

By | February 6, 2018

The components of the salary should be understood properly as restructuring the same helps in maximizing the tax savings. This will help you to increase your take home salary. You should know your salary breakup components. It becomes easy then to restructure the same and increase the take home. In most of the cases, the structure of the salary is decided by the employer, and only in some cases the employees have the choice to restructure it according to their requirements.

Hence, you must know the salary breakup components and you can urge your HR department to provide you a favourable salary breakup, so that the taxes can be minimized. In this article we will discuss the key components of your salary and will also discuss, how you can restructure it to get the maximum benefits and maximum take home.

1) Basic salary

This component is the core component of the salary and is completely taxable. In case you are a new employee, then tax savings is not important for you and you may want to increase your take home. You can urge your HR to have a basic salary as low as possible and then an adjustment of the remaining salary in other allowances like medical, conveyance, food, etc. In case you are a senior level employee and you have the tax savings as the priority, in that case you may look forward to have a higher basic pay to avail the additional tax benefits.

2) HRA

HRA or the house rent allowance is the other prime component of your salary. You can use this HRA component to maximize the tax savings. In case you are a salaried person and you are living on rent, you can claim the HRA. If you are living on rent or you are paying the EMIs of the loan on some property, you can avail the tax benefits in both cases. In case you are living with your parents and your parents own the home-property, you can claim the HRA by paying the rent to the parents.

3) Bonus

This is also the important component of your salary structure. The employer generally deducts the tax before providing the bonus to you. In such cases you can show the tax savings investment to your employer and then you can claim a higher bonus. If you are not doing so, then you have to claim the refund at the time of return filing. It is a tedious process and should be avoided.

4) Prerequisites

These are the perks as well as additional benefits, which are given to the employees. Some of the prerequisites are taxable whereas there is tax benefit in some others. One can ask the HR to include the tax savings prerequisites in the salary components and this can reduce the tax burden. Purchase of periodicals as well as books comes in tax exempt. It is also the case for the mobile as well as telephone reimbursements. The facilities like sports and health club also come in tax exempt.

5) Contributions of Retirement

Most of the companies today provide the provident fund options to the employees for a better retirement of the employees. There is a benefit on PF in tax savings. In this case, both the employees as well as employer make their contribution. The employer contribution is exempted near 12 percent of the salary and the employee’s contribution is applicable for the tax deduction of Rs. 1.5 Lakhs. This is according to the section 80C. In this case you can ask your employer to provide you the required ratio of the retirement corpus, which will avail you with the maximum tax benefits.

6) Leave Travel Allowance

This component of the salary can also help you to lower the tax burden on you. This applies to the travel in India only. Actual travel costs can be availed under the section 10 (5) for twice in 4 years.

Thus, we have seen the major components of the salary and it is understood that by restructuring the salary components, one can maximize the take home. One should talk with the employer to get the favourable salary breakup.

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