How Can We Help a Team Member Save on Taxes After a Salary Increase?

Tax-Related Clarification Needed

My name is Neha, and I work as a Manager-HR in a private organization. I am seeking clarification on tax-related matters and tax-saving strategies through the following example:

One of our team members recently received a salary increment, and her current CTC is Rs. 508,800/- per annum. Previously, she was in the 10% tax slab, but after the increment, she now falls under the 20% tax slab. I would appreciate any suggestions on how to address this issue, as the difference in the tax amount is Rs. 8,800/- only, given that the tax liability up to 5 lakhs is at 10%.

Options for Mitigating Tax Increase

What options are available to mitigate this situation, or what are some effective tax-saving strategies in this scenario?

I look forward to your advice.

Thanks & Regards,
Neha

You can pay him 1600 per month as a conveyance allowance, which is tax-free. Also, check if he has any investments. If he incurs any medical expenditure, he can get up to Rs 15,000 per annum tax-free. Check for his House Rent Allowance (HRA) applicability as well. All this will bring down his taxes.

Hi Neha,

Use this link to enter the details, and the tax will be calculated: https://incometaxindiaefiling.gov.in/. The option to click on will be "Tax Calculator."

I hope you are aware that the income tax at a higher tax level is only for the amount exceeding the previous level. So in this case, the difference between 10% and 20% is ₹800. Does an additional tax of ₹800 bother you so much that you are looking for ways of evasion?

I hope you are referring to CTC, but some elements are not included in the tax calculation. CTC includes management contributions (PF, Gratuity, etc.). Income tax will be calculated based on the earned income only.

You can bifurcate some part of the salary into reimbursement and get bills for that amount, such as for uniforms, telephone, petrol, etc.

It's a general rule that the more you earn, the more you pay in taxes. In an effort to avoid tax, you would not want to limit the salary to under a 10% slab cap. If your team member is earning more than 5 lakh in salary, then she must be aware of tax-saving investments (LIC, PPF, etc.). Your role is to deduct the tax as per the applicable rule, and her role is to provide you with the investment declaration.

Please ask her to discuss this matter with a good CA or investment broker and not with the Company HR. If you want to learn about good techniques to save tax through investment options, the above answers by other senior members would provide you with a good starting point.

Best Regards,
Amod.