A ready-reckoner on how to minimise tax at 6% |
Never bothered to take a close look at your salary structure? Here is a nugget which will make you pick up the magnifying glass. With proper structuring of your salary, your total tax liability could be below 6 per cent (5.89 per cent precisely) if your pay packet is Rs 6 lakh per annum. If you earn about Rs 15 lakh per annum, the tax could work out to just 12.79 per cent. |
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The fact is that despite the fringe benefit tax, not many companies have restructured the salary of the employees. In fact, some of them have begun to show the FBT as part of your CTC to make sure you know how much you actually cost to them! |
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With increments round the corner and the season for switching jobs hotting up, here is how you can make the maximum from your salary package for 2006-07. |
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Most companies offer a flexi-basket in which you can break up your salary according to what works best for you. "While an employee would try to break up the pay so that his tax liability is reduced even if the employer has to pay higher FBT, for an employer it is more of an organisational issue and he would look at the total additional burden," says Rajeev Anand, associate director, PricewaterhouseCoopers. |
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It makes sense for you as an employee to have a higher basic component in the salary as employer's contribution upto 12 per cent of the salary and contribution upto 15 per cent of the basic towards superannuation fund is not subject to tax. |
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This year the finance minister has removed the FBT on superannuation fund contributions, making it cost neutral to employers. |
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If you can wrest payment of lease rentals for your car from your employer, it can save you a lot of taxes. So if you are planning to upgrade to a bigger car, it could be a good idea to let the employer buy the car for you. Makes sense if you are mostly going to be using it for office work anyway! |
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Note that claiming reimbursements for genuine office expenditures made, such as car maintenance, telephone and claiming other benefits like medical reimbursement, leave travel assistance and food and beverages at office can all add up to significant tax savings. |
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Depending on whether you are repaying a home loan or living in a rented apartment, your tax planning would differ. While repayment of loan would allow you to claim deductions, in case you are paying rent, you can plan to save tax on your salary by ensuring that your house rent allowance is of an equivalent amount. |
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So when you sit down to discuss your increment, remember to throw in a request for an employee-friendly salary break-up. |
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