5 Ways To Restructure Your Salary To Reduce Income Tax Outgo

As the financial year draws to a close, many Indians grapple with the burden of income tax. However, there’s a silver lining amidst the tax maze – restructuring your salary intelligently can significantly reduce your tax liability. Today, we’ll delve into savvy strategies tailored to help you optimize your salary structure and retain more of your hard-earned income.

Understand Your Current Compensation Structure

Begin by dissecting your current salary package. Identify components such as basic salary, bonuses, allowances, reimbursements, and other perks your employer provides. Knowing how each element is taxed under Indian tax laws will serve as a crucial foundation for your tax optimization strategy, and you can save more than Rs 1 lakhs on your taxes, depending on your income and age. 

Illustration: Let’s say your salary is Rs 25 Lakhs annually, and you take it all in hand. According to the old tax regime, you must pay Rs 5,69,400 in taxes, but you can structure your salary to lower this tax.

Here’s how you can structure your salary.

Opt for Meal Coupons:

Your employer’s meal coupons are exempt from tax up to a specific limit, allowing you to save on your tax bill while enjoying meals. The catch is that coupons up to Rs 50 are exempt. Yet, we can still leverage some benefits from it, considering a five-day workweek. So you’ll get an exemption of Rs 13,000 annually, reducing payable tax by Rs 4,056 in the Old Tax Regime.

Payment	Unstructured	Structured
Salary	2500000	2487000
Meal Coupons	0	13000
Total Income	2500000	2500000
Payable Tax	569400	565344

Leave Travel Allowance (LTA)

LTA can be claimed for domestic travel expenses you and your family incur, providing further tax savings. Utilize these allowances effectively to minimize your taxable income. On average, a person spends 5% – 10% of their income on vacations, and let’s consider you go with the upper limit, so with a salary of Rs 25 lakhs, you’ll be taking Rs 2.5 lakhs as your LTA allowance, which reduces payable tax by Rs 82,056. But we can structure this income further. 

Payment	Unstructured	Structured
Salary	2500000	2237000
Meal Coupons	0	13000
TLA	0	250000
Total Income	2500000	2500000
Payable Tax	569400	565344

Consider House Rent Allowance (HRA)

HRA can be a valuable tax-saving tool if you’re a salaried individual paying rent. Claim HRA exemptions by submitting rent receipts to your employer. HRA exemption is allowed for the least of the following:

• Actual HRA received by the employee
• 40% of the salary is in a non-metro city, and 50% is if the rented property is in a metro city.
• Actual rent paid should be less than 10% of salary.

In context, you pay Rs 20,000 in rent monthly, making it Rs 2.4 lakh per annum, which can be claimed as HRA. The exemptable amount on your income will be the one which is lowest amongst the three:

• The actual HRA is Rs 2.4 Lakhs
• Considering you stay in a metro city, 50% of your salary will be Rs 12.5 Lakhs
• 10% of your salary will be Rs 2.5 lakhs

So, your entire HRA will be exempted in this situation as it is the lowest, bringing your payable tax down by Rs 1,56,936 as per the old regime. Can we tailor further for more savings?

Payment	Unstructured	Structured
Salary	2500000	1997000
Meal Coupons	0	13000
TLA	0	250000
HRA	0	240000
Total Income	2500000	2500000
Payable Tax	569400	412464

Other Allowances

Apart from the expenses mentioned earlier, organizations can also provide their employees with other allowances like allowance on their phone bill and internet connection as it is used for the company’s work, considering your phone and internet cost you around Rs 1,000 a month, you can add it as an allowance reducing Rs 12,000 from your income. 

You can also consider requesting a travel/fuel allowance from the company, which, on average, ranges from Rs 1,200 to Rs 19,200. Considering you travel using your own vehicle, you’ll easily claim up to Rs 19,200 in some cases; if we add these numbers, you’ll save Rs 1,66,670 on your taxes.

Payment	Unstructured	Structured
Salary	2500000	1965800
Meal Coupons	0	13000
TLA	0	250000
HRA	0	240000
Travel/Fuel Allowance	0	19200
Cellular allowance	0	12000
Total Income	2500000	2500000
Payable Tax	569400	402730

Seek Professional Advice

Navigating India’s tax landscape can be complex, and seeking guidance from a tax consultant or financial advisor is advisable. They can offer personalized advice, help you maximize deductions and exemptions, and ensure compliance with tax regulations, ultimately optimizing your tax-saving potential.

Restructuring your salary to minimize income tax is wise and essential for maximizing your take-home pay. If you strategically leverage tax-saving investments, employer-provided benefits, allowances, and deductions available under Indian tax laws, you can significantly reduce your tax burden. Check if you can get a salary restructure to help you save taxes further.

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