12 Smart Ways To lower Taxes On Salary

The financial year is going to end soon and you may be busy planning last minute tax saving for FY 2016-17. But no matter what time of the year it is, understanding how to save taxes on salary can be very helpful.

Changes announced in Budget 2017, have lowered taxes for all in FY 2017-18 (unless you earn more than Rs 50L).

Take a look here to check how much tax you will save in FY 2017-18. You can also use our calculator here.

If you are looking for information on how to lower taxes on SALARY INCOME, this article explains how.

This article will help you to

• Save tax legally on salary income
• Change your salary structure

There are various allowances and perks which are exempt from tax and you can easily claim them provided that they are a part of your salary structure. So by restructuring your salary, and including these allowances, you can reduce your taxes in a big way. You will have to rework your salary structure with your Employer.

What you can do to 

• Ask your employer/HR/Payroll department to restructure your salary
• Make sure you submit all bills/receipts on time. Most of these allowances can only be claimed via the employer (and not at the time of filing your income tax return)

With the help of these allowances/perks, your taxable income will be lower and your take home will be higher.

Here is the list of such 12 benefits that can lower your tax outgo significantly

 Allowance/Perks/Tax Benefits

Name of the Tax Benefit	Purpose of Allowance/perks	Max Exemption
Medical reimbursement	Medical expenditure of employee or dependants	Rs 15,000 per year
Conveyance Allowance	Commute between office and place of residence	Rs 1600 per month.
Leave Travel Allowance	Fare expenses for travel in India	Actual travel  expenditure or amount provided in the CTC whichever is lower
House Rent Allowance (HRA)	For rent of a house near the place of work.	Minimum of the following : 1)      Actual HRA(Given in CTC) 2)      50% of (basic + dearness allowance)if metro city otherwise 40% if non-metro 3)      Total rent – 10% of Basic salary Use HRA calculator
Mobile reimbursement and residential telephone bill reimbursement	Telephone expenses for official use	Actual bill amount or amount provided in CTC whichever is lower
Uniform allowance	Expenses for purchase and maintenance of official uniform	Minimum of actual expenses and allowance received
Children education allowance	Education expenses of children	Rs 100/month per child(up to two children)
Children  hostel allowance	Hostel expenses of children	Rs 300/month per child(up to two children)
Books & Periodicals	Expenses on books, newspaper & magazines.	Actual expenses.
Food coupons	Company provides food coupons	Rs13,200/year ( Rs 50 per meal considered for 22 working days in a month, which works out to Rs 1100 per month)
Fuel reimbursement	Expenses of fuel, driver’s salary	Rs 1800/month. in case cubic capacity of engine is 1.6 litres OR else 2400 /month along with Rs900/month for driver’s salary (Note: This exemption depends on whether car is owned by employee or employer)
Club facility	Expenses incurred towards payment of fees to acquire corporate membership.	Actual expenses

Example to understand salary restructuring to lower your tax outgo in FY 2017-18

Below we have explained how you can change the structure of your salary to reduce your taxes. In this example Basic Salary has not been changed. This is because change in Basic Salary can impact EPF contribution that you and your employer make. Lowering EPF may not be a good thing for building a retirement corpus. We have considered LTA taxable before and after CTC tweak, as LTA can only be claimed twice in a block of 4 years. HRA has been claimed after tweak assuming that rent paid per month is Rs 12,000 and the employee is living in one of the metros. Do remember that whoever you are paying rent to (say parents) must include this income in their income tax return.

You can talk to your HR or Payroll department to restructure your salary components to enjoy these tax benefits.

	CTC	CTC Tweaked
Basic Salary	2,22,000	2,22,000
HRA	1,80,000	1,50,000
Special Allowance	80,000	44,200
LTA	18,000	10,000
Conveyance allowance		19,200
Medical reimbursement		15,000
Mobile reimbursement		14,400
Food coupons		13,200
Residential phone bills		12,000
CTC	5,00,000	5,00,000

Taxable Salary	CTC	CTC Tweaked
Basic Salary	2,22,000	2,22,000
HRA	1,80,000	69,000
Special Allowance	80,000	44,200
LTA	18,000	10,000
Total taxable salary	5,00,000	3,45,200

Tax outgo	CTC	CTC Tweaked
Tax outgo	12,500	–
(FY 2017-18)
Cess 3%	375	–
Total Tax	12,875

As you can see earlier tax payable was Rs 12,875. It has been brought down to 0 after restructuring.

You can use any of the components mentioned in the table above to restructure your CTC and reduce the tax paid by you. You must also try to claim 80C deduction so that your tax outgo is minimum. Your contribution to EPF is eligible for deduction under section 80C.

You can read our detailed guide on salary income – here.

Hope you found this useful – do ask us if you have any questions or need help. Write to us support@countmagic.com