Reduce your Tax Liability by Restructuring Pay Package

By | March 14, 2013

Salary Package Restructuring can reduce your Tax Liability

Reduce Tax Liability by restructuring Pay PackageBudget 2013 came out with severe disappointment. There was no single good news for common salaried man in Budget 2013. People were expecting a increase in income slab on which no tax is payable but neither there was increment in tax slab nor there was any addition in the deduction under section 80C but still one can reduce outgo of tax by restructuring their pay package.

In general when a person get recruited he hardly bother about the structure of his salary, he only enquire about the package or Cost to Company (CTC). But becoming more attentive in knowing your inclusion and exclusion in salary can reduce your tax burden by a considerable amount. Let’s see the ways by which one can minimize the tax liability:

1) Take car on lease

Buying own car is the second dream of every Indian which comes after buying a dream house. But Instead of buying a car, ask your company to lease you one as part of your compensation. The leased car is a taxable perk but only a small value (Rs 1,800-2,400 a month depending on the size of the car) will be added to your income.

Price of car: Rs 8 lakh

Perk value: Rs 28,800 per year (2400*12)

Tax saved in 30% slab: Rs 2.4 lakh

2) Get company driver

The strategy that works for the car works for the driver. Instead of you hiring one and paying him from the post-tax income, ask your company to arrange for one.

Driver’s salary: Rs 10,000 a month

Perk value: Rs 900 per month

Tax saved in 30% slab: Rs 33,750

3) Save for retirement

You can lower your taxable income by asking your employer to invest in NPS on your behalf. Under Section 80CCD(2), up to 10% of your basic salary is fully deductible if invested in the NPS.

Basic salary: Rs 40,000 a month

NPS Investment: Rs 4,000 per month

Tax saved in 20% slab: Rs 14,832

4) Take a home loan 

If you take a home loan and give the house on rent, you can cut your tax. Only 70% of rental income is taxable but you can avail of unlimited tax deduction for the interest paid on the loan.

Home loan interest: Rs 4 lakh per year

Rent: Rs 60,000 per year

Net loss: Rs 3.58 lakh

Tax saved in 30% slab: Rs 1.1 lakh

5) Go back to B-school

You can ask your employer to fund any part-time or short-term professional course during the year. The taxable value of the perk is only 10% of the cost of the course.

Course fee: Rs 80,000

Perk value: Rs 8,000

Tax saved in 30% slab: Rs 22,250

6) Use company’s gadgets

If an employer provides a computer, laptop or tablet to the employee for professional as well as personal use, the later will be taxed for only 10% of the cost.

Price of laptop: Rs 60,000

Perk value: Rs 6,000

Tax saved in 30% slab: Rs 16,686

7) Books, newspapers and telephone

Your newspaper and telephone bill can be tax-free if your company includes these perks in your compensation package.

Newspaper, telephone bill: Rs 5,000 a month

Perk value: Nil

Tax saved in 30% slab: Rs 18,540

8) Food and gift coupons

Meal and gift coupons can also bring down your taxable income, but the tax-free limit is insignificant compared with other allowances.

Meal coupon: Rs 2,600 per month

Perk value: Nil

Tax saved in 30% slab: Rs 9,640

So by above we can easily conclude how a smart pay package restructuring can not only reduce your tax burden but also boost your post-retirement life, Now it’s your time to take an action.

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