The income tax provision is applicable to all the individuals who have been eligible to the income tax bracket as decided by the government of India. The income tax slab starts from INR 5 lakh for individuals having income on a yearly basis. There are also certain provisions and deductions which can be done to save the taxes on even the eligible income tax bracket.
Here in the blog post, we would be finding out ways to save income tax even if the income surpasses the INR 20 lakh limit which is seen as a high-income bracket and this CTC also attracts higher tax than the lower bracket. However, we would be doing a detailed analysis on this particular tax-saving technique and would recommend going once through the post.
We are here to help by making your tax liability zero even if your cost to the company (CTC) is Rs 20.41 lakhs per annum for FY 2021-22.
Suggestion to Consider for making Income Tax Zero when Income is Rs 20.41 Lakhs Per Annum
Include all those components that are tax-free
For availing most of the benefits or HRA, HRA should be ideally 50% of the Basic Salary (40% HRA if an individual has rented a house in a non-metro)
In case of Car Maintenance, The said company could reimburse up to Rs 1,800 every month for the car that is less than 1600 CC (i.e. Rs 2,400 every month in case of bigger cars) in addition to Rs 900 every month for the driver salary by way of tax-free allowance
Employees may have the option of making a to both EPF and NPS.
Giving a Gift Voucher by a company on a birthday or anniversary that is worth Rs 5000 per annum is tax-free
Companies that purchased and own Cars provide much more Tax benefits.
The disadvantage of the Salary Structure Discussed here
However, there is one drawback to the entire salary structure. The disadvantage or drawback is that the monthly payout shall be lower. However, it is better for the future to save more money. At this juncture, It is better to quote the words of Stock market magnate Warren Buffett. “If you buy things you don’t need, you will soon sell things you need.”
Illustration of Tax Efficient Salary Structure
Salary Components
Annual
Monthly
Remarks
Basic Salary
9,54,000
79,500
Fully Taxable
House Rent Allowance
6,36,000
53,000
It is Partially Tax exempted
Car Maintenance
28,800
2,400
They are Tax free if bills are submitted
Meal Coupons
26,400
2,200
Tax free till Rs 50 per meal (22 working days)
EPF Contribution by EMployer
1,27,200
10,600
Tax Free up to 12% of the Basic Salary
NPS (Employer Contribution)
1,06,000
8,833
Tax Free up to 10% of the basic salary
Phone & Internet Bill Reimbursement
36,000
3,000
It is Tax Free if bills are submitted
Uniform Allowance
24,000
2,000
It is Tax Free if bills are submitted
Children Education/Hostel Allowance
4,800
400
It is Tax Free if bills are submitted
Newspaper/Journal Allowance
12,000
1,000
It is Tax Free if bills are submitted
Gift voucher
5,000
–
Tax free upto Rs 5000
LTA (Leave Travel Allowance)
30,000
–
It is Tax Free if bills are submitted
Gratuity
50,962
–
Paid while leaving the company
Cost to Company
20,41,162
1,62,933
–
Below-mentioned the illustration of nearly 20.41 lakhs per annum.
Sr. Number
Calculation of Income Tax on Salary
Applicable for FY 2021-2022
1
Total Cost to Company
20,41,162
2
Tax-Free Components Car MaintenanceMeal CouponsNPS (Employer Contribution)EPF (Employer Contribution)Mobile Phone and Internet Bill ReimbursementUniform AllowanceChildren Education/Hostel AllowanceNewspaper/Journal AllowanceGift voucherLeave Travel Allowance
4,00,200
3
House Rent Allowance(Rent Paid is Rs 53,000 and that too in Metro City
6,36,000
4
Standard Deduction (It was increased to Rs 50,000 in the Budget 2019)
50,000
5
Gratuity (Not part of salary but component of CTC and is non-taxable)
An Individual could claim the following Tax Deductions:
Section 80CCD(1B) (Rs 50,000): Investment in the NPS (Shall you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?)
Section 80C/80CCC/80CCD (Rs 1,50,000): The Investment in the EPF, PPF, The Pension Plans, ELSS, FD, NPS, NSC, SCSS, Life Insurance, SSA and NPS. Also includes Tuition Fees, Home Loan’s Principal repayment, Stamp Duty (The Best Tax Saving Investments under section 80C)
Section 80E: The Interest paid on the Education Loan. There is no upper/lower Limit! (Tax Benefit on the Education Loan (Sec 80E))
Section 24: The Interest paid on the Home Loan for the Self-occupied homes. No Limit for the Rented house.
Section 80D: The Premium payment for the medical insurance for an individual and his parents. It further includes a Rs 5,000 limit for the preventive health checkup (Thus Making Sense of the Tax Benefit on the Health Insurance under section 80D)
A glimpse of Monthly Pay Slip (After the Income Tax on the Salary):
Let’s have a glimpse of the salary slip when you have a package of Rs 20.41 lakhs and your tax payable is zero.
Gross Salary: 1,32,500
Basic Salary: Rs 79,500
HRA: Rs 53,000
Deduction: Rs 30,033
EPF(Employer Contribution) – 10,600
NPS (Employer Contribution) – 8,833
EPF(Employee Contribution) – 10,600
The Income Tax – 0
The Net Salary= Rs 102,467 [1,32,500 – 30,033]
The Reimbursement (on the submission of bills) – Rs 1,35,600 (Yearly)
Car Maintenance – 28,800
Uniform Allowance – 24,000
The Phone and the Internet Bill Reimbursement – 36,000
Newspaper/Journal Allowance – 12,000
Hostel Allowance/ Children Education – 4,800
LTA (Leave Travel Allowance) – 30,000
Gift/Food Coupon – Rs 2,200 monthly
Additionally, employees would get the Food Coupons that are worth Rs 2,200 every month
What does Retirement Savings Look Like?
The good aspect or Unique Selling Proposition of the above-mentioned salary structure is that a large component of salary is apportioned to the retirement savings
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