I am seeking advice on creating a cost-to-company (CTC) structure that provides maximum tax savings under the new tax regime, specifically for our senior employees who have a CTC of more than 60 lpa. We have the flexibility to include performance variables and expense reimbursements in the CTC. Your expert guidance would be greatly appreciated. Thanks in advance.
From India, Delhi
Acknowledge(0)
Amend(0)
1From India, Delhi
Acknowledge(0)Amend(0)
Designing a CTC structure for optimal tax savings, especially under the new tax regime, requires a strategic approach. Here are some steps you could consider:
1. Understand the Tax Slabs: Familiarize yourself with the new tax slabs and rates. This will help you understand how much tax your employees will be liable to pay at different income levels.
2. Allocate Basic Salary: The basic salary should ideally be around 40-50% of the total CTC. It is fully taxable, but a higher basic salary increases the percentage of HRA, which is exempted from tax.
3. House Rent Allowance (HRA): If your employees live in rented houses, they can claim a tax exemption on their HRA. The exemption amount will be the least of the following three options: actual HRA received, 50% of salary (for those living in metro cities), or rent paid minus 10% of salary.
4. Leave Travel Allowance (LTA): LTA is exempt from tax for two journeys in a block of four years. You can include this in the CTC structure.
5. Performance-based Rewards: Including performance-based rewards or bonuses can help as these are not taxable up to a certain limit under the Income Tax Act.
6. Expense Reimbursements: These are not part of taxable salary if they are actual bills for expenses incurred for official purposes.
7. Provident Fund: Both the employee's and employer's contribution to the PF are exempt from tax up to a limit.
8. Health Insurance: Premiums paid by the company on behalf of the employee for health insurance are exempt from tax.
9. Meal Coupons: These are exempt from tax up to Rs. 50 per meal.
10. Car Lease: If the company provides a car lease, the lease amount is fully exempt from tax.
Remember, the goal is to structure the CTC in a way that maximizes the components that offer tax exemptions while ensuring it aligns with the company's budget and compensation philosophy. It would be beneficial to consult with a tax advisor or chartered accountant to ensure the CTC structure is compliant with the latest tax laws and beneficial for the employees.
From India, Gurugram
Acknowledge(0)Amend(0)
1. Understand the Tax Slabs: Familiarize yourself with the new tax slabs and rates. This will help you understand how much tax your employees will be liable to pay at different income levels.
2. Allocate Basic Salary: The basic salary should ideally be around 40-50% of the total CTC. It is fully taxable, but a higher basic salary increases the percentage of HRA, which is exempted from tax.
3. House Rent Allowance (HRA): If your employees live in rented houses, they can claim a tax exemption on their HRA. The exemption amount will be the least of the following three options: actual HRA received, 50% of salary (for those living in metro cities), or rent paid minus 10% of salary.
4. Leave Travel Allowance (LTA): LTA is exempt from tax for two journeys in a block of four years. You can include this in the CTC structure.
5. Performance-based Rewards: Including performance-based rewards or bonuses can help as these are not taxable up to a certain limit under the Income Tax Act.
6. Expense Reimbursements: These are not part of taxable salary if they are actual bills for expenses incurred for official purposes.
7. Provident Fund: Both the employee's and employer's contribution to the PF are exempt from tax up to a limit.
8. Health Insurance: Premiums paid by the company on behalf of the employee for health insurance are exempt from tax.
9. Meal Coupons: These are exempt from tax up to Rs. 50 per meal.
10. Car Lease: If the company provides a car lease, the lease amount is fully exempt from tax.
Remember, the goal is to structure the CTC in a way that maximizes the components that offer tax exemptions while ensuring it aligns with the company's budget and compensation philosophy. It would be beneficial to consult with a tax advisor or chartered accountant to ensure the CTC structure is compliant with the latest tax laws and beneficial for the employees.
From India, Gurugram
Acknowledge(0)Amend(0)CiteHR is an AI-augmented HR knowledge and collaboration platform, enabling HR professionals to solve real-world challenges, validate decisions, and stay ahead through collective intelligence and machine-enhanced guidance. Join Our Platform.
LEAVE STRUCTURE OF THE COMPANY.doc
Grade Structure for Company.xls