How Can We Revise Salary Structures to Boost Take-Home Pay and Save on Taxes?

Hello,

I would like to request some guidance from your side.

In our company (IT & ITES), we are in the process of revising our employees' salary structures so that their net take-home salary increases (I am referring only to the revision in structure, not the salary itself). Could you please suggest some ways to save taxes or incorporate certain reimbursement components into our salary structure? In this scenario, the company would have to pay Fringe Benefit Tax (FBT) on it, but most employees are willing to cover it from their pocket if they can achieve substantial tax savings. In this case, the FBT can be added to their Cost to Company (CTC).

Currently, our salary structure is very simple and straightforward. An employee with an annual salary of Rs. 10 lakh takes home only 7 lakh Rupees (due to 30% Income Tax). I am providing a sample salary structure of an employee with a Rs. 12 lakh annual salary for your review and suggestions:

Particulars Amount (Rupees)

Basic Salary 40000

PF (Employer's Contribution) 4800

House Rent Allowance (HRA) 16000

Special Allowance 36150

Conveyance 800

LTA 1000

Medical Allowance 1250

Total CTC (Per Month) 100000

I would greatly appreciate your valuable insights on this matter.

Regards,

Deepak

Dear Deepak,

You are requested to provide the revised salary as reimbursement under the following heads:

1. Books
2. Professional Development
3. Petrol
4. Driver's Salary Reimbursement
5. Meals, etc.

Additionally, please deduct 6.798% from the reimbursement as Fringe Benefits Tax (FBT) from the employees' remuneration. This approach allows employees to save 23.202% on taxes, and the employer does not need to bear the FBT cost separately.

Before implementing this process, it is advised to consult with your auditor or supervisor.

Regards,
S. Balakrishnan

Dear Sir,

In this situation, when the employer is not ready to pay FBT from his own pocket, who will pay it? If the employer deducts these charges from the employee's salary and pays, then under what head does he show that deduction in the salary slip? Is this kind of deduction legally allowed?

Please guide.

Regards,
Deepak

Dear Deepak,

Please reduce the amount of allowance by the tax amount. For example, if the book reimbursement allowance is Rs 100 per month, and the Fringe Benefit Tax (FBT) on it is Rs 7, the allowance shown in the slip will be Rs 93. The balance of Rs 7 will be deposited as FBT.

Alternatively, in the letter, you can mention that the above allowance will be paid subject to deduction of tax. Then, show the tax in the salary slip.

Nitin

Hi,

Please find some important information on FBT. Before we go and implement this benefit for employees, it is very important to know the background and how it works. Please go through the attached file.

Regards,
Makarand Kotalwar

You may use this Excel spreadsheet as a reference note on the components used. Just update the CTC figure in the last cell and update the basic; rest all is defined. You may alter this as per your requirements.

Regards,
Pankaj