Your salary is made of many components like basic salary, allowances (taxable and exempt), perquisites, etc. While calculating taxable salary, some of these components are taxed as per the Income Tax Act, whereas some stand exempt under the law or partial for some of the cases, subject to conditions. We will give you some of those items or parts of the salary structure, which would help you take more salary to your home.
Oh. So is it possible to do so? But why?
HRA (House Rent Allowance)
You may be happier to go for a flat provided by your employer (if you are that lucky!), rather than stay in a rented house and pay the rent. However, Income Tax Act has different treatments for the housing alternatives, in case you don’t own your house or you are staying in any other town (where you don’t own your house).
However, there are few points to be noted:
- If you stay in your own house, it is better to have lower HRA in your basic salary structure if it is possible.
- If the house is owned by your parents, grandparents etc., you can still pay them rent, and claim the HRA exemption.
- If it is possible to negotiate, then keep the HRA around at the similar level of rent paid, which will exempt the allowance fully.
Related Article :- Why Tax Planning Is So Important That It Can’t Be Missed
Car purchase or perk
You may be thinking of owning of car and if yes, this pointer is for you. There could be more than one scenarios.
- If your employer lends you loan for car purchase, it can be easily accepted as the EMIs are deducted from the taxable salary and such portion of salary is tax free. However, only hindrance could be that you don’t own the car till all the EMIs are paid off as in the case of external car purchase.
- If you are amongst those very few people, to whom the employer offers car as a perquisite, then you are the luckiest of luckiest. This is because, in such a case, perquisite in the nature of car, is taxed only for Rs.1800- Rs.2400 per month if you are using it for personal purposes as well. Only drawback here could be, that you don’t own the car, but on quitting the job, you can surely buy it at approval of company.
- There could be one more situation where the you own the motor car and expenses will be reimbursed, then also Rs.1800-Rs.2400 per month is taxable as perquisite, if you use it for both professional and personal purpose.
EPF benefit
As a salaried individual of a private sector company, you could only rely on EPF as your retirement corpus. However, if you have education loan which has interest rate @ 11-13% then, you may rethink on that loan repayment.
EPF pays interest for almost around 8.5%, so it would be better to pay off the education loan rather than investing in EPF. This will result in 2 benefits.
- Tax benefit under section 80E for repayment of interest on education loan.
Law does not put upper threshold for interest repayment in an year. So, we can draw an inference that if we repay the whole loan in a year, we are able to claim total interest that we paid in the same year under section 80E.
- Prepayment of the education loan by routing EPF investment amount to the same, will result in elimination of almost 2-4% interest payable. Best even because, EMIs are post tax commitments. This makes prepayment of education loan land a double bonanza.
Other allowances
There are many other allowances and perquisites which are worth mentioning here.
- Education or Training
If the employer reimburses the course expenses or training expenses or if he himself provides such course or training, then in such a case, it is an exempt perquisite. So, if you want to earn and learn, your employer can sponsor you, and that too without any tax consequence.
- Sodexho or Other Meal Coupons
These are part of your salary but are given out before the month starts and you can spend them wherever they are accepted. You are not required to submit proof of spending them over, so rest assured you enjoy them without worrying about the tax effect.
- Gratuity
Not an allowance, but gratuity is a long term benefit and is payable only if you complete a service of 5 years in the same company. Hence, it is better to get rid of this component and adjust it under some other head, if you don’t plan to stick around much in one company for long.
- LTA
This is for vacation expenditure for 2 journeys in a block of 4 years. Make sure that your salary structure has this component and be sure that you maintain appropriate evidence for claiming the exemption of the same.
While we are striving hard to make money, income tax takes part of it, (for high tax brackets, at almost 30% of the salary). So, if allowed, it is wiser to structure the salary or apply your existing structure in such a way that it will result in minimum tax effect.
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