Earning a regular salary? Save tax the smart way!
Earning a salary? Looking to save
tax the smart way? Then you have two options. First is salary restructuring and
second is tax saving instruments. Here we take a look at both these options and
how to use them effectively.
Salary restructuring: As the term implies, salary restructuring allows you to
redesign your salary, so as to reduce your total tax liability. Here are some
steps you can take in order to reduce your tax liability.
- Do you need a house? Does your employer offer Rent Free
Accommodation or House Rent Allowance? Then go for it, as the amount gets
deducted from your total taxable income.
- Does your company expect you to wear uniform at work?
If so, the expenses incurred on buying and maintenance the uniform will
not be taxed.
- Does your employer provide you with allowance for your
children’s education and hostel accommodation? Then use it to claim
exemption under section 10 (14).
- Does your company provide you with a telephone facility
in your home? Then it not taxed. However be warned against taking
telephone allowance, since it is totally taxable and will increase your
taxable income.
- Opt for the car facility, since the value of the perk
is much lower than the actual expenditure incurred on the car.
- We all have to visit the doctor at some point of time.
So save tax by claiming medical reimbursements up to Rs.15, 000.00 p.a.
But don’t take any medical allowance, since it is completely taxable.
- If your employer pays Fringe Benefit tax (FBT), then
sum of fringe benefits, is tax-free for you. Also if salary is paid in
arrears or in advance, claim relief under section 89 (1).
- Always ask your employer to include dearness allowance
and dearness pay along with commissions earned in your salary. It will
lower your tax liability on house rent allowance, gratuity and pension.
- If you are eligible for a pension, always get it
commuted, as commuted pension is tax-free for government employees and
partially exempted for others. You can get tax relief under section 89(1).
- If your current employer is participating in an
authorized provident fund, and you change your employer within 5 years of
joining the firm, ensure your new employer is also a member of the
authorized provident firm. It will let you transfer the corpus in your
provident fund to the new company without paying any tax. Also insist your
employer fix his contribution to your provident fund to 12% of your
salary, as it is the highest limit for tax exemption.
- Plan your retirement or resignation at the start of the
financial year in order to lower the tax on retirement benefits.
- As leave travel concession is not taxed if certain
criteria are fulfilled, try to claim this incentive to the highest
possible level, without having to pay any tax.
Let us assume your annual salary is
Rs. 2,00,000. You get HRA of Rs. 10,000 and your medical reimbursement is Rs.
5,000. Your employer gives you an allowance of Rs. 15,000 for your son’s
educational expenses. So instead of Rs. 2,00,000 your total taxable salary now
becomes Rs. 1,70,000 (2,00,000 - 10,000 - 5,000 - 15,000). This will
effectively reduce your tax liability.
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