Can We Restructure an Employee's Salary for Better Tax Benefits? Seeking Advice!

Respected all,

In my company, we were paying Rs. 20,000 per month as basic salary to an employee. The same has already been paid for the period April to October. Now, the employee wants the salary restructured so that he can take advantage of Medical Reimbursement, Leave Travel Concession, etc., which are exempted under the salary head.

Can we reduce the basic to Rs. 15,000 per month for the remaining period of November to March and pay the balance of Rs. (5,000 * 5) i.e. Rs. 25,000 for the remaining five months as medical reimbursement and leave travel concession?

Please help.

Regards,
Jyoti

Dear Jyoti,

Good Afternoon!!!

Kindly confirm if you are giving Rs. 20,000/- as Basic or gross with any bifurcation..??

Yes, you can restructure the salary. For more information in this regard or reference on salary administration info, you may visit this payroll resources page.

Absolutely right, Bhoopender. If an employee is a member of EPF, then PF contribution cannot be reduced in any case, which is directly related to Basic Salary. If not, then it can be reduced.

Regards,
Pradeep

Thank you for the replies.

Please note:
The employee is not a member of EPF.
Rs. 20,000 is given as gross salary without any bifurcation.
Professional Tax of Rs. 130/- is deducted since it comes in the slab of 15000-25000.
No TDS has been deducted till now.
Bonus is separately paid @ 12.5% of (20000*12)

So can I restructure the salary as:
Basic Salary: 16000 p.m.
Transport Allowance: 1000 p.m.
Medical Reimbursement: 15,000 p.a.
Leave Travel Concession: 20,000 p.a.

Regards,
Jyoti

Dear Jyoti,

Hi,

This is not possible, dear, because it will affect his/her compensation structure. Although some organizations are giving LTC as per their norms and even paying it every two years after the confirmation of the said employee. Kindly check with your HR Head and the employee's Appointment letter, then only you can make the right decision.

Regards,
Bhagwan Tolani
Sr. HR
TM Group
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Hi,

I have attached the best compensation structure.

Rgds,
Arul D.

The employee has no problem as he is doing so only for taxation benefit. So can I reduce the basic salary as given above in the middle of the year.

Regards,

Hi Arul,

I have attached the best compensation structure.

The CTC breakup is perfect except the maximum exemption of Conveyance Allowance shown as Rs. 800/-, which is per month, i.e., Rs. 9600/- per annum.

Rgds,

Chandrakant

Basic salary cannot be reduced beyond the limit of the amount on which PF is already deposited in earlier months.

Best Regards,
Ashok

Dear Sir,

Can anyone share the tax-friendly compensation and benefit salary structure and which fringe benefits will be included in CTC? In our company, we include PF, Bonus, ESI, LTC, Welfare Items, and Group Insurance.

Regards,
Krishnamoorthy.D

Dear Ashok,

Is there a rule that states we can't reduce the basic salary to an amount lower than the basic amount that was contributed towards PF in the previous month?

Regards,
Hitesh Patel