Salaried class have always complained of raw deal year after year in income tax laws. But the good news is you can still manage to pay Zero (NIL) income tax on salary of up to Rs 16 lakhs. All you need to have is right salary structure and invest in RIGHT Tax saving plans! We give you details below.
Tax Efficient Salary Structure:
Salary structure is very important to keep taxes low. The good news is most employers are partially flexible with salary structure. We give you one such sample salary structure for CTC (Cost to Company) of Rs 16 lakhs.
We have kept following points in mind:
- Included all components which are tax free (Medical Reimbursement is No more Tax free)
- For most benefit of HRA – it should be 50% of Basic salary (40% is good if rented houses are in non-metro)
- Car Maintenance
- The company can reimburse Rs 1,800 per month for car less than 1600 CC (Rs 2,400 per month for bigger cars) along with Rs 900 per month for driver salary as tax free allowance.
- Transport Allowance is NO more tax free (Budget 2018) but Car Maintenance reimbursement is.
- Employer can have option of subscribing to both NPS & EPF. Keeping both makes salary more tax efficient, though take home may go down
- Gift Voucher worth Rs 5,000 per annum is tax free. Some companies give such vouchers at birthdays or anniversaries!
- Company owned cars give much more tax benefit and hence is recommended for high salaries.
Income Tax Calculation for Salary (FY 2018-19):
Below is the income tax calculation for above salary.
|S. No.||Calculating Income Tax||FY 2018-19|
|1||Total Cost to Company||16,69,865|
|2||Tax Free Components||3,54,000|
|3||HRA (Rent Paid is Rs 42,500 and in Metro City)||4,25,000|
|4||Standard Deduction (introduced in Budget 2018)||40,000|
|5||Gratuity (Not part of Salary but part of CTC – Non Taxable)||40,865|
|7||Home Loan Exemption||2,00,000|
|8||Income after Deductions [1 – (2 + 3 + 4 + 5 + 6)]||3,00,000|
|9||Basic Tax Exemption||2,50,000|
|10||Taxable Income [8 – 9]||50,000|
|11||Income Tax [5% of 10]||2,500|
|12||Rebate u/s 87A||2,500|
|13||Tax Payable [11 – 12]||0|
Following salary components are tax exempt:
- Car Maintenance
- Meal Coupons
- NPS (Employer Contribution)
- EPF (Employer Contribution)
- Mobile Phone and Internet Bill Reimbursement
- Uniform Allowance
- Children Education/Hostel Allowance
- Newspaper/Journal Allowance
- Gift voucher
- Leave Travel Allowance
- Transport Allowance & Medical Reimbursement is No more tax free (from FY 2018-19)Tax Deductions:You can claim following tax deductions.Section 80C/80CCC/80CCD (Rs 1,50,000): Investment in EPF, ELSS, PPF, FD, NPS, NSC, Pension Plans, Life Insurance, SCSS, SSA and NPS. Also includes Home Loan Principal repayment, Tuition Fees, Stamp Duty (Best Tax Saving Investments u/s 80C)
Section 80CCD(1B) (Rs 50,000): Investment in NPS (Should you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?)
Monthly Salary Slip:
We have seen the salary structure and how you need to pay 0 income tax even when the CTC (Cost to company) is Rs 16.7 lakhs. Now lets look at how your Monthly Salary Slip would look like.
Gross Salary – Rs 1,06,250
- Basic Salary – 70,833
- HRA – 35,417
Deductions – Rs 15,583
- NPS (Employee Contribution) – 7,083
- EPF(Employee Contribution) – 8,500
- Income Tax – 0
Net Salary = Rs 90,667 [1,06,250 – 15,583]
Food/Gift Coupon – Rs 2,200 monthly
- Additionally Employee would get Food Coupons worth Rs 2,200 every month (which can be used for meals, eating out in restaurants or buying grocery).
- Also employee can be gifted vouchers worth Rs 5,000 once every year [may be on birthday]
Reimbursement (on submission of bills) – Rs 1,35,600 (Yearly)
- Car Maintenance – 28,800
- Phone and Internet Bill Reimbursement – 36,000
- Uniform Allowance – 24,000
- Children Education/Hostel Allowance – 4,800
- Newspaper/Journal Allowance – 12,000
- LTA (Leave Travel Allowance) – 30,000