How the salary strcture of the employee can be redifined to reduce the tax burden ?



We are a small company , we generally provide employee the salary asbasic + DA _HRA , which all is taxable

What are innovative ways to reduce there tax burden ?

How the salary strcture of the employee can be redifined to reduce the tax burden ?
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3 Replies to “How the salary strcture of the employee can be redifined to reduce the tax burden ?”

  1. you will have to know tax savings option available in your country. normally if you show more money goes into provident fund, and tax saving investment options like mutual funds that invests in government securities and bonds, u are likely to have a good tax saving structure.



  2. To get the maximum tax benefits under the Income-tax Act, 1961 (the ‘Act’):
    A) pay your employees under the following sections/headings:
    -Basic Salary
    -Conveyance Allowance – Rs.9,600 p.a. (exempt u/s 10(14)(ii) of the Act, @ Rs.800 p.m., Rs.1,600 p.m. in case of disabled employee)
    -Children Education Allowance – Rs.1,200 p.a. (exempt u/s 10(14)(ii) of the Act, assuming one child @ Rs.100 p.m. per child, maximum two children)
    -Hostel Allowance – Rs.3,600 p.a. (exempt u/s 10(14)(ii) of the Act, assuming one child @ Rs.300 p.m. per child, maximum two children)
    -House Rent Allowance – (HRA, exempt amount u/s 10 of the Act would be least of the following: (a) Actual HRA paid, (b) Rent less 10% of basic salary, (c) 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi)
    -Leave Travel Allowance – The amount actually incurred on performance of travel on leave to any place in India by the shortest route to that place is exempt. But the exemption shall be available only in respect of two journeys performed in a block of 4 calendar years (exempt u/s 10 of the Act)
    -Food Allowance – Rs.18,000 p.a. (@ Rs.50/meal)
    -Medical Reimbursement – Rs.15,000 p.a. (as per Proviso to Sec. 17(2) of the Act, but the employee has to submit the bills against this)
    -Contribution to Employee Provident Fund (EPF) – 12% of the salary p.a. (EPF is a social security programme for the employees run by the Central Government as per the provisions of Provident Funds Act, 1925 and useful after their retirement. Employer and employee both contribute to the same. Full amount in EPF can be withdrawan by the member only:
    -if attained 55 years of age;
    -at the time of termination of service;
    -if retired on account of permanent/total disablement;
    -if shifted abroad permanemtly or
    -on account of mass/individual retrenchment)

    B) tell your employees to claim the deductions as follows:
    a) The new version of Section 80C of the Act allows the salaried to invest up Rs.1,00,000 in any of the schemes below and it will not attract any tax: (Note: this list is illustrative only)
    -Public Provident Fund (PPF) (with an annual tax-free return of 8.0%, PPF is a long-term savings plan with attractive tax benefits. It is suitable for those who are not looking for short-term liquidity or regular income. Normal maturity period is 15 years from the close of the financial year in which the initial subscription was made. The Maturity values for PPF account would depend on what you invest each year. It is open for all individuals, to subscribe to this you have to visit any of the scheduled banks (for eg. State Bank of India, Bank of India etc.) in India.)
    -Equity Linked Savings Scheme (ELSS) – Mutual Funds (returns depends upon scheme to scheme, could be as high as 60%)
    -National Savings Certificates (NSC) (fixed returns depending upon the terms of the certificate)
    -Kisan Vikas Patra (KVP) (fixed returns depending upon the terms of the certificate)
    -Life Insurance (returns depend upon scheme to scheme)
    -Contribution to Provident Fund
    b) Mediclaim insurance premia – Rs.10,000 (Section 80D)
    c) Interest on loan taken for higher studies – Any amount of interest paid (Section 80E)
    d) Donations to certain funds, charitable institutions, etc. (qualifying amount depends upon the fund invested in) – (80G)
    This way the deduction from the salary could go minimum upto Rs.1,10,000 which will be deducted from the employees’ gross salary.

    Should you require any more assitance wrt tax-planning (how to save tax) in India, kindly eMail us at [email protected] or drop in at http://www.ThinkSynergy.co.in. We ‘ll be more than glad to assist you.

    Warm Regards,

    per PulkitGoyal
    ThinkSynergy





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