Appraisal season has already kick started giving hopes to the salaried class that their take-home pay will get some boost this time. However, a point should be kept in mind that a higher pay does not concede, with higher take-home always. An increase in just basic pay or bonus will not translate into a substantial bigger income in hand as most of it will go away into taxes. Therefore, if your employer gives you an option to choose the structure of your salary, then it becomes a tool to ensure higher take home and lower tax outgo. Here are ways in which a salaried individual could save taxes and improve income in hand.
Balanced Basic and Variable Pay
: The basic pay is one that is wholly taxable. Hence an amount too high or too less will either mean more taxes or lower linked benefits in the form of HRA and Provident Fund respectively. The basic pay should be balanced according to the tax bracket. This means that those falling in the highest tax slab should aim to keep their basic pay low, while those in 10% income slab could add further. Also, the objective of take-home funds should also decide the basic pay proportion. For example, people who need cash for immediate needs should keep their basic pay lower while those building retirement corpus can opt for a higher basic pay.
: Take advantage of the company’s provided allowances to the maximum. Telephone, conveyance, medical and fuel are those heads that are not taxable and could help distribute the income evenly.
: Various perquisites available to an individual in the form of car, food coupon or education fee by an employer is another way to lessen the tax burden. For instance, most of the employers offer food coupons to their employees that are redeemable at the grocery stores. It is to be noted that such coupons up to Rs. 30,000 and gift coupons of up to Rs. 5,000 do not attract tax and translates into a saving of Rs. 10,000 in taxes for someone in the highest tax bracket.
An employee could ask an employer to direct salary from a fully taxable head to the National Pension System (NPS) scheme. The Section 80CCD (2) states that 10% of the basic pay will be fully deductible if the amount is invested in the NPS, which is over and above Rs. 1.5 lakh exemption provided under the Section 80C.