De-Tax Your Employees

Get a bigger pie of salary -Employees Tax Trend

Businesses – big and small, understand that they have to not only attract the best people, but also keep them satisfied. While salaries offered have gone up, employers continue to face the limitation of keeping the CTC (Cost To Company) in control. Since income tax takes away up to 30 per cent of salary, standard salary packages do not meet the needs of employees. Hence, employees should be given an option to design their own packages. Employers could increase the take home or net benefit to employees with tax-efficient salary packages without increasing the CTC.

Be Flexible: Offer Tax-Efficient Salary Packages

Offering flexibility in the components of salary package tells employees that you care. Facilitate financial planning by making available services of a tax expert. Such measures are effective for employee retention as they increase the net salaries, without affecting the company’s profits.  A tax efficient salary package may include one or more of the below mentioned components on the basis of an individual’s financial needs:

House rent allowance: If an employee is residing in a rented house, salary package/HRA can be tuned according to his/her rentals instead of following a standard figure.

Medical insurance: Every employee needs medical insurance in these times of ever-increasing medical cost. Employers can provide group insurance to employees as its cost is much lower than individual insurance covers. Family members of employees can also be covered under the policy.

Medical reimbursements: The medical bills can be submitted for self as well as family members. Employees should be informed that actual bills are necessary to save tax.

Education allowance: It’s a very small amount, but in these times of inflation, every rupee counts. There is no need to submit bills/receipts. This component can be included in the package of all the employees.

LTA or leave travel allowance: Most of the employees travel in India with family. If their travel tickets are reimbursed, it helps them save tax. LTA can be given as a regular salary component, but actual travel tickets are necessary to claim tax benefits.

Car lease: Many employees own a car or plan to own a car. In majority of cases, the car is used for personal as well as office purposes. A major share of employees’ salary (sometimes as much as 30 per cent) goes into paying EMIs of car loan. If the company offers car lease to the employees, huge tax can be saved every month. If someone has a driver, the driver’s salary should be paid by the company to help save tax.

Provident fund: Up to 12 per cent of basic salary can be tax- free if an employee allows the employer to reduce the ‘take home’ salary and save for future by contributing in EPF – the safest investment option.

Gratuity: If an employee stays for more than five years in an organisation, the amount received on retirement is tax-free up to Rs 10 lakh.

Telephone or mobile bills: Employer can pay or reimburse the employees’ telephone or mobile bills. The amount paid by the employer is not taxable in the hands of employees. 

Membership and subscription fees: Reimbursement of membership/subscription fees of professional institutes or associations, business journals, newspapers and magazines is tax-free in the hands of employees. The employer can claim these expenses from taxable income.

Uniform allowance: The expenses incurred on purchase or maintenance of uniform which is required to perform office duties is fully exempt from tax.

Be Updated Employees Tax Trend: Facilitating Informed Investing in NPS

National Pension Scheme (NPS) is the latest tax benefit that can be made available to the employees, effective from the current financial year. All new salary packages should have NPS as it helps in providing tax exemptions to the employees, without increasing the CTC. It also helps in saving for retirement, which is important considering the non-existent government support in sunset years. Last but not the least, it helps employees in fighting inflation by investing in the equity, which usually gets higher returns.

If an employee has the choice of designing the pay package, s/he can choose those perks which have utility for his/her family like conveyance allowance and food coupons.

What measures do you take to save tax on your salary? Do share your story.