How Can I Maximize Tax Savings on My Rs. 4,20,000 Salary Without Any Savings?

Dear All Seniors, with due respect, I would like to urge you all to please advise me on the best salary break-up of Rs. 4,20,000 per annum for maximum tax saving. FYI, right now I am single and have absolutely no savings at this point in time due to some family financial crises. I am looking forward to your kind help on top priority.

With Warm Regards,
Neeraj
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You can invest in PPF up to ₹70,000 per annum. You will get a tax rebate under section 80C for the same and 9.5% interest per annum. The remaining ₹30,000 can be used to purchase a LIC policy or invest in mutual funds. Additionally, you can invest in infrastructure bonds and receive a tax rebate of ₹20,000.

If you have an educational loan, you can avail of a rebate on the interest paid, similar to a housing loan where the interest paid is eligible for a rebate, with the principal included in section 80C.

You will also receive medical reimbursement benefits of ₹15,000, or ₹20,000 if your parents are senior citizens.

Hope this information helps.

All the best!

Dear Sir, Many thanks for your kind reply. I would love to do this for next year to save the maximum tax. However, due to the current situation, I don't have any cash on hand for investment as my family's financial position is not good. Therefore, I kindly request you again, if possible right now, please advise me on the best possible salary structure/break-up. I plan to discuss this with my Managing Director and aim to convince him for a very minimal TDS deduction. I hope you can understand my situation and assist me on top priority.

With warm regards,
Neeraj

Maximizing Tax Savings Through Salary Structure

1. Have a basic salary as large as possible so that your employees will get more HRA exemption.

2. Include a component called LTA (Leave Travel Allowance) in the salary. Its limit is ₹36,000 per annum. An individual can claim this exemption two times in a 4-year bracket.

3. Provide conveyance allowance, which is tax-free up to the limit of ₹9,600 per annum.

4. Offer medical allowance, which is tax-free up to the limit of ₹15,000 per annum.

Components of the Salary Structure

- Basic: ₹40,000
- Conveyance: ₹800
- HRA: ₹20,000
- Children Education: ₹1,500
- Medical: ₹1,250
- LTA: ₹3,500
- Allowance: ₹12,084
- PF (Employer): ₹4,200

When added together, the total comes to ₹83,334 per month (₹1,000,008 per year); the tax amount is ₹7,500 per month (with no savings taken into consideration).

Hope this information helps.

Dear Sir, Many thanks for your kind information. However, please note the following:

1. The company is not deducting the PF from my salary because, according to their rules, they can only deduct the PF if my earlier company was also deducting the same from my salary (which I left 11 months ago).

2. I don't have my personal PF account right now.

3. I am single, so I have no children.

4. My salary is Rs. 35,000 per month (Rs. 420,000 per year).

Therefore, I would like to request your advice on the best salary break-up based on the above information. Your guidance on this matter would be greatly appreciated.

Many thanks in advance.

With warm regards, Neeraj

I am sure your company has a predetermined breakup, so first find out about that, and then we can discuss the same. How long have you worked in this company? You will not be eligible for tax this year if you have been unemployed for the last 11 months; hence, don't worry. In the next financial year, make the investments that I have mentioned above. You can always open a PPF account if not EPF. Anyways, if other employees in the company have PF, please insist on one for yourself too. It is a good savings head, and employers contribute to it as well.

Dear Sir, Regarding my current salary break-up, I will ask my HR to provide me with the details and shall keep you posted. Regarding my exact joining date, I joined this company on Monday, 29th March 2010, and at that time, the company gave me a salary for 3 days (29th, 30th, and 31st of March 2010). If you still feel that I am not eligible for tax for this financial year, please advise.

With Warm Regards,
Neeraj

You have worked for a year, and you don't know your salary breakup? Surprising! So, has the company deducted your TDS? And the HR never asked you to submit a tax declaration - surprising again! Anyways, I guess they should have deducted your TDS as you are in the tax bracket. Without investment, you cannot save tax in the next 2 months.

I suggest you submit House Rent bills; it will help you save TDS in the coming 2 months. (People do submit fake bills most of the time, not advising you to do the same, but it is an option.) Make investments for the next financial year.

I understand your views, sir. But I have many friends working in a similar export field who have salaries of approximately 1 lakh per month. They don't have savings or have minimal savings, yet they are still paying taxes of around 1000-2000 at max per year. This is all because of an excellent C.A. in their company who designed the salary structure in such a way. I feel they are lucky.

Many thanks once again for sharing wonderful knowledge.

With Warm Regards,
Neeraj