How Can We Restructure a 12 Lakh CTC to Minimize Tax Liability? Seeking Advice!

Miss Perfectionist
Hi,

One of our employees is earning a CTC of 12 lakh. He is paying 10,000 as his tax. Can anyone please tell me some ways to reduce his tax or restructure the CTC so that his tax liability is minimized?

6 views and no reply... seniors, please help me.
icrpl
Hi Miss Perfectionist,

Could you please tell me if the tax amount (Rs. 10,000) is monthly or annually, and describe the salary structure of 12 lakhs?

Thank you.
Miss Perfectionist
Attached is the salary structure. Please have a look and suggest.

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Amitmhrm
Hi Miss Perfectionist,

The annexure that you have loaded here shows that most of the heads are non-taxable. However, you can still make changes in some of the heads like performance-based pay, special allowances, and basic salary. Instead of providing such a high amount in special allowances, you may consider offering some benefits under FBT, where he will have to pay approximately 6.75% of the total amount covered under FBT, which requires the deposition of receipts in lieu of that.

The heads that attract FBT are petrol reimbursement, books & periodicals, entertainment allowance reimbursement, tour & travels. Please also include educational allowances in your structure, which are exempted up to a certain limit for up to 2 children.

Regards,

Amit Seth.
YGeeta
Hi,

Check out the Cost to Company Breakup:

| Cost to Company | Monthly (INR) |
|----------------------------------|---------------|
| Basic Salary | 40,000 |
| HRA | 16,000 (Tax-free with HR calculation)
| Conveyance | 800 (Tax-free)
| Medical Allowance | 1,250 (Tax-free with bills)
| Food Coupons | 1,500 (Tax-free)
| LTA | 6,667 (Tax-free)
| Medical Insurance* | 1,000 (Tax-free)
| Employer's contribution to PF | 4,800 (Tax-free)
| Bonus | 3,333 |
| Variable Performance Based Pay | 15,000 (15% of CTC)

Special Allowances:
- Phone bill: 1,000 (Tax-free with bills)
- Education allowance: 200 (Tax-free with bills)
- Books and periodicals: 500 (Tax-free with bills)
- Gift coupons: 416.67 (Tax-free, paid once a year)
- Petrol reimbursement: 500 (With bills)

Total: 100,000

Putting this information into the proper Excel sheet can help reduce taxable income.

Thanks,
Geeta
HRDX
Basic must ideally be between 35 to 40% of CTC. HRA should be 50% of basic. The maximum components that must be reimbursed include petrol and maintenance, books and periodicals, medical expenses, LTA, and uniform. However, based on my experience, it is unlikely that we can minimize the TDS below the amount you have mentioned.
Ravi (HR)
Dear All,

See below. Must read, it's really inspiring for all. This is about "A CUP OF TEA".

There was a couple who used to shop in beautiful stores. They both liked antiques, pottery, and especially teacups. One day, in this beautiful shop, they saw a beautiful teacup. They said, "May we see that? We've never seen one quite so beautiful." As the lady handed it to them, suddenly the teacup spoke.

"You don't understand," it said. "I haven't always been a teacup. There was a time when I was red and I was clay. My master took me and rolled me and patted me over and over, and I yelled out, "let me alone", but he only smiled, "Not yet."

"Then I was placed on a spinning wheel," the teacup said, "and suddenly I was spun around and around and around. Stop it! I'm getting dizzy!" I screamed. But the master only nodded and said, "Not yet."

Then he put me in the oven. I never felt such heat. I wondered why he wanted to burn me, and I yelled and knocked at the door. I could see him through the opening, and I could read his lips as he shook his head, "Not yet."

Finally, the door opened, he put me on the shelf, and I began to cool. "There, that's better," I said. And he brushed and painted me all over. The fumes were horrible. I thought I would gag. "Stop it, stop it!" I cried. He only nodded, "Not yet."

Then suddenly he put me back into the oven, not like the first one. This was twice as hot, and I knew I would suffocate. I begged. I pleaded. I screamed. I cried. All the time I could see him through the opening nodding his head, saying, "Not yet."

Then I knew there wasn't any hope. I would never make it. I was ready to give up. But the door opened, and he took me out and placed me on the shelf. One hour later he handed me a mirror and said, "Look at yourself." And I did. I said, "That's not me; that couldn't be me. It's beautiful. I'm beautiful."

"I want you to remember," then, he said, "I know it hurts to be rolled and patted, but if I had left you alone, you'd have dried up. I know it made you dizzy to spin around on the wheel, but if I had stopped, you would have crumbled.

I knew it hurt and was hot and disagreeable in the oven, but if I hadn't put you there, you would have cracked. I know the fumes were bad when I brushed and painted you all over, but if I hadn't done that, you never would have hardened; you would not have had any color in your life.

And if I hadn't put you back in that second oven, you wouldn't survive for very long because the hardness would not have held. Now you are a finished product. You are what I had in mind when I first began with you."

God knows what He's doing (for all of us). He is the Potter, and we are His clay.

He will mold us and make us, so that we may be made into a flawless piece of work to fulfill His good, pleasing, and perfect will.
anujt12@gmail.com
This story has a very special moral. We must face our difficulties that come in our way to success. Choose the difficult path because "Darr ke Aage Jeet Hai."
neha1918
You can add the tax-free components like Conveyance Allowance - 800 PM (Tax-free), Children Education Allowance - Rs. 1000/- per child (Tax Free), and Flexible Pay - which is again tax-free but has FBT liabilities.

Regards.
thankavel
Dear Perfectionist,

Apart from the regular structure, Medical Reimbursement Allowance can be added up to a maximum of 1250/-, and fuel reimbursement allowance can also be included.

Thangavel Sr. Executive - HR
sanjeev.ranchi
Before answering your question, please clear some questions.

1) What declaration has he currently given for tax exemptions?
2) What is the current CTC breakup?

Regards,
Sanjeev
prasad.s
Dear Perfectionist,

This information was provided by one of our consultants:

- Basic Salary: 3,00,000
- Edu Allow: 2,400
- Transport Allow: 9,600
- Uniform Allow: 24,000
- Research Allow: 30,000
- Helper Allow: 36,000
- Rent-Free Unfurnished house: 4,20,000
- Car With Driver: 1,92,000
- Residence Telephone: 40,000
- Gift in Kind: 15,000
- Medical Reimbursement: 15,000
- Free Lunch: 21,600
- Mediclaim Insurance: 18,000
- LTC: 19,843
- Employer Contribution to Recognition PF: 36,000
- FBT: 20,557

If the salary is paid as per the above breakdown, the FBT will be 20,557. The taxable income will amount to 3,45,000/-, with tax due of 37,860/-.

I hope this is clear.
shekhar.pandeyy
Hi,

Most of the ways to save another few bucks on taxes are explained by many. There is one more way that was practiced in one of the companies I remember. They had a car leasing company that was actually providing a new car on lease, and the company was paying the amount as a car lease. The condition was that while leaving the job, either the employee would purchase the car as per the plan or sell it off at negotiable prices to the car lease company.

You can check it out.

Regards,
Shekhar
manjusha_14
Dear Miss Perfectionist,

Attached herewith is the Income Tax Calculator for the year 2009, which will help solve your problem.

Regards,
Manjusha

Hi,

One of our employees is earning a CTC of 12 lakh. He is paying 10,000 as his tax. Can anyone please tell me some ways to reduce his tax or restructure the CTC so that his tax liability is minimized?

6 views and no replies... seniors, please help me.
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truptighalke
Hi,

Can you give a brief overview of the current salary structure in our company? We have the following structure:

Monthly:
1) Basic
2) HRA
3) Personal Allowance
4) Children Education Allowance (which is not taxable if documents are produced)
5) Uniform Allowance (which is not taxable if documents are produced)

Annual:
- LTA
- Medical

Reimbursements:
- Petrol Allowance
- Driver's Salary
- Toll/Parking Charges
- Car Maintenance
- Driver's Bonus
- Meal Card

The reimbursements are a cash component and are tax-free only if documents are produced. I hope this information is helpful.

Regards,
Trupti
nitenvy
Hi,

What I would recommend is to have your CTC restructured to suit your tax liabilities. For instance, you can show part of your income as petrol reimbursements, car hire, and maintenance. If your company also provides assistance in periodical books purchase, housemaid allowance, etc., you can show these expenses and avail of tax benefits to some extent. However, I am sure that in India, nobody can save much from tax deductions when you go beyond a CTC of 6.00 lakhs per annum. Anyways, these are just my suggestions. For further assistance, you could consult a CA, and I am sure they can guide you on how to save maximum tax to the possible extent.

Regards,
Nitenvy
razia.khan1984@gmail.com
Hi Miss Perfectionist,

Can you please give me the breakdown of his salary? Is he paying ₹10,000 per month or per annum?

Regards,
Razia
r4uonly
Dear,

It is a good suggestion for reimbursements. Please break the salary into two parts. One will be the actual salary, and the other will be in fringe benefits. Collect the full figure from the employee.

For details, please find the attachment.
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prashant1314
Dear r4uonly,

PF employee contribution is also covered under the Rs. 1 lakh investment slab. Please confirm.

Prashant
09850401160
sanjay_deys
Hi,

Thanks to Amit Seth, Geeta, and HRDX for their valuable contributions. Reimbursement of Petrol and Driver Salary (maybe $10,000) per month can save tax of 30.9% or 33.66%, as the case may be. LTA can save tax but in each alternate year. The main idea is to make a portion of the salary as reimbursement of expenses and take those out from the salary slip.

Thanks and Regards, Sanjay
diyanayak
Dear Ms. Perfectionist,

You can also increase the amount of meal vouchers. The maximum limit is Rs. 30,000 per annum which comes to Rs. 2500 per month. As this does not attract FBT, it is a good way to save tax.

Regards,
Diya
rajkumarpuri
If a person who is drawing 12 lac as CTC and still does not pay just 10000 as Tax, which is not even 1% of the CTC he is earning, does not deserve any advice/sympathy. What he wants, everything FREE. How will the GOVT. run and the infrastructures he wants to enjoy, will be constructed.
vimalshrimali
Dear,

Few options:

- You can increase Sodexo meal coupons by Rs. 10,000 per month.
- You can reimburse cash for the driver's salary and vehicle maintenance - Rs. 5,000 per month.
- You can reimburse cash for monthly petrol - Rs. 5,000 per month.

Regards,
Vimal Shrimali
sheoran.amit
You have to restructure your salary. Put conveyance allowance and other allowances as reimbursement. Employees can get their reimbursement after the submission of bills. On this, employees need not pay tax, but the company has to pay Fringe Benefit Tax (FBT).

Regards,

Amit
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