How Can We Design a Salary Structure That Helps Employees Save on Income Tax?

Dear all,

Can anyone brief me on what would be a good salary structure that can help employees save on income tax?

Thanks & regards,
Raj

Hi Raj,

The contents of the salary breakup are as follows. You can prepare it according to your own preference. HRA would be 50% or 60% of the basic salary.

- Basic
- HRA
- CCA - 825/- is exempted from tax
- Other Allowances
- Mobile Reimbursement
- Medical Reimbursement of 1250/month is exempted from tax

Gross Per Month = Sum of all the above.
Gross Per Annum = 12 * Gross/Month
PF Contribution = 12% of Basic/Annum
ESI Contribution = 4.75% of Gross/Annum

Medical = The mediclaim facility provided to employees who are not covered under ESI, as the maximum ceiling for ESI is 10000/Month. Any amount exceeding this will be covered under Mediclaim or as per company policy.

Ex-Gratia/Bonus = A fixed amount as a bonus
Annual Fixed Gross Cost = Gross/Annum + Ex-gratia
Annual Total Cost = AFGC + PF + ESIC
Annual total cost is also referred to as CTC.

Apart from this, Food coupons, Holiday packages, and Furnishing items are included in their CTC.

I hope this helps clarify your queries to some extent.

Regards,
Amit Seth.

Dear Mr. Amith,

Thank you for providing the salary structure. Could you please explain the meaning of Medical reimbursement? I am also involved in payroll for 120 employees. If you could share the information, it would be very helpful for me to facilitate the reduction of Income Tax for our employees.

Warm Regards,
Ramu

Dear Ramu,

The medical reimbursement is a flexible part of the CTC; actually, it is exempted from tax up to rupees 1250. It is paid after presenting the medical bill for the same.

Regards,
Amit Seth

Dear Amit,

Thank you for the information. I have a query regarding your answer because I am also responsible for payroll, and we do not reimburse medical expenses. Instead, our company categorizes this as an allowance and includes it in the basic salary. We provide this payment as a medical allowance along with the monthly salary. This allowance is now considered part of the salary and is fully taxable.

My question is, now that it is taxable, up to what amount do we have to pay tax for this?

Warm regards,
Sunita Sarkar

Thank you, Jahanjeb and Sunita! 😊

Sunita, actually, it's a part of the gross salary per month, but mostly it is paid after submitting the medical receipt for the same. Up to rupees 1250/- is exempted from taxes, and it is termed as Medical Allowance.

Regards,
Amit Seth.

Hi Amit,

I have a query. I am working in an infrastructure company, and this is my company's Salary Structure. Can you give me some suggestions on how it can be further improved?

- BASIC: 10000
- SPECIAL ALLOW: 600
- ADDN ALLOW: 15125
- SITE ALLOW: 2925
- MEDICAL: 1250
- CONVEYANCE: 800
- EDUCATION: 200
- UNIFORM: 1000
- LTA: 900

TOTAL A: 32800
- RETIREMENT BENEFITS:
- PF 12%: 1200
- Superannuation 15%: 1500
- Gratuity 5%: 500
TOTAL B: 3200
TOTAL (A + B): 36000
PER ANNUM: 432000

* For the (A) Part - We need to submit 6-monthly bills for uniform, medical, and LTA; otherwise, it is taxable.

Waiting in anticipation of your reply :)
Regards,
Ms. Kopal Shrivastav

Hi Amit,

I too have a query relating to the salary structure. I want to clarify whether if a company wants to pay HRA (40% of basic), is it required that all the employees must provide supporting documents like a rent agreement and receipt. Please shed some light on this issue.

Regards,
Revathi

Dear Mr. Amith,

Thank you very much for clarifying the query, but I am not so clear about it. You did mention that before paying the medical allowance, we have to present the medical bill for the same. I didn't understand this point - to whom do we have to present this bill, and what does the term "bill" mean? Is it any type of form?

Could you also clarify this query for my friend:

Meaning and difference between:

1. CTC and Annual salary
2. How we calculate the DA, mentioning an example for Rs. 150,000 per annum.

Warm Regards,
Ramu

Dear Ramu,

The medical bill receipt from any medical shop is required to be deposited with the commerce or finance department in order to avail the benefits of Medical Allowance. This receipt is exempt from taxes and is necessary during audits.

Annual fixed salary refers to that part of the salary which remains constant; it is the amount you are guaranteed to receive throughout the year for your services. On the other hand, CTC (Cost to Company) includes components that are variable and not fixed. These components are not directly received as cash benefits.

Regards,
Amit Seth.

Hi,

Can anyone guide me as to which salary component is totally exempted from tax? I need to structure the salaries for Grade I executives. As per our company policy, for executives whose gross is $25,001 and more, the basic has to be calculated only for 25%.

I was able to structure it to some extent for $70,000:

As per Payslip - $32,000

Basic + DA = $8,000

HRA = $4,000

CCA = $12,000

Spl Allowance = $8,000

Total: $32,000

Monthly Voucher Payment:

- Driver's Salary = $5,500
- Telephone = $2,000
- Journals & Periodicals = $2,000
- House Loan (this loan was taken directly from the bank) = $10,000
- LIC policy = $11,126
- Bajaj Life Insurance = $500

Total: $31,126

Monthly Total: $63,126

Payouts As per terms of employment (Annual):

- Medical Reimbursement = $15,000
- LTA = As per company policy
- Office wear & Maintenance = As per company policy

Please help me to structure $2,00,000, $1.25,000, and $80,000. What are the non-taxable components that can be included if the individual has not taken any policy or has not invested in anything.

Please help me out with this.

Still no comments... Can anybody guide me as to what are non-taxable components and what's the proportion of that.

Dear Friend,

I did understand your problem. I am attaching here the information on Tax Exemption. Please have a look at it. I hope it may help you. If you have any other queries regarding Tax, please email me at [Login to view].

Warm Regards,
Ramu

Dear Ramu,

Thank you very much for the useful information. I will try to work on the breakup for 2 lakhs, 1.25 lakhs, 70K, and 85K. If I am not able to figure it out, kindly, please help me. Once again, thank you very much.

Regards,
Umama Siddiqua

Hi,

To add to the list that was sent by Amit, there are a couple of other reimbursements that can be added:

1) Conveyance Reimbursement (Petrol Bills)
2) Telephone Reimbursement (Telephone or Mobile Bills)
3) LTA (payable in a block of 2 years) - (Travel Bills)
4) Food coupons

Points 1-3 do incur a Fringe Benefit Tax of 6.79% on the total amount reimbursed. Food Coupons are completely Tax-Free.

There are a couple of other components available in a salary structure, such as Club Facilities, Car Lease, Driver Charges, etc. I am currently studying these components to understand the tax implications. I will keep you posted on the same.

Regards,
Gina

Hi Amit,

A small clarification is sought regarding CTC. Is it not inclusive of mobile expenses, insurance, and other facilities provided (like a laptop/company vehicle)?

Regards,
Leena

Dear Revathi,

Yes, one is required to produce the rent agreement or receipt of the same at the end of the financial year to avail tax benefits on HRA.

Dear Leena, yes, all the expenses are included while calculating CTC. However, some companies, even some big companies, don't add certain expenses in their CTC. For instance, travel allowance is not fixed; it depends on the requirement. Sometimes a meeting is lined up, and one is required to attend it, so you can't include traveling allowance in your CTC.

Likewise, some companies provide mobile expenses but don't include that in their CTC as the mobile bill can't be static.

I hope this helps solve your query to some extent.

Regards,
Amit Seth

Dear All,

Could you please let me know the maximum exempt amount for books and periodicals in a monthly salary (we used to follow up to 500)?

Thank you & regards,
Jessie J