DIAGRAMA DE FORRESTER SUBSISTEMA DE CONTROL AMBIENTAL

While many of you in employment take enormous efforts to earn a salary, it is also equally important in our opinion that you restructure your salary well, in order to save tax on your hard earned salary. And mind you if you do so you’ll have a greater “Net Take Home” (NTH) pay, which will allow you to streamline your finances well and also help you buy physical assets such as your dream house and a dream car.

Many of you today get a big fat pay cheque, but it is important that one restructures the vital components of salary well in order to be saved from being taxed.

The vital component of salary, where restructuring can be required is as under:  Basic Salary:

While this is the base of your head of income – “income from salary”, it is important that you have your basic salary set right. This is because the basic salary constitutes 30% – 40% of your Cost-to-Company (CTC). So, having a very high basic component may lead to having a high tax liability in absolute Indian rupee terms. But similarly if you reduce your basic salary considerably, then you would lose out on the other benefits such as Leave Travel Allowance (LTA), House Rent Allowance (HRA) and superannuation benefits associated with your basic.  House Rent Allowance (HRA):

If you are paying rent for an accommodation, and if your organisation extends you HRA benefits, then this is another vital component which can help you to reduce your tax liability. But it should be noted that you cannot pay rent for the house which you own and if you are residing in it.

Hence, now on the other side if you are staying in a rented house and you are the one paying the rent, then HRA exemption [under Section 10(13A)] can be availed for the period during which you occupy the rented house during the financial year.

48

However in order to obtain an exemption, you are required to submit appropriate and adequate proof of payment of rent for the entire period for which you want to claim exemption. But, if you as an employee are getting an HRA of less than Rs 3,000 per month, you are not required to provide a rent receipt to your employer.

Also you need to note an important change in HRA rules introduced in this year. As per the circular issued by the Central Board of Direct Taxes (CBDT) in October 2013, if you are paying an

annual rent of more than Rs 1 Lakh or Rs 8,333 per month, then you will have to report the Permanent Account Number (PAN) of your landlord to the employer (Earlier you had to furnish a copy of the PAN card of your landlord only if your annual rent exceeded Rs 1.80 lakh, or Rs 15,000 per month). If your landlord does not have a PAN then you need to file a declaration to this effect from your landlord along with the name and address of the landlord.

The maximum exemption which you can enjoy for HRA is as under:

In Chennai/ Delhi/ Kolkata/ Mumbai In other cities

Least of: Least of:

Actual HRA Actual HRA

Rent paid in excess of 10% of salary* Rent paid in excess of 10% of salary* 50% of salary* 40% of salary*

*Salary for this purpose includes basic salary + dearness allowance (if in terms of service)

(Source: Personal FN Research)

Here a noteworthy points is, if your rent is very high and if you are not fully covered by the HRA limit, then it would be wise to pick a company leased accommodation (if the company in which you work in offers so), as this company leased accommodation would constitute to be the perk value and would be taxed @ 15% of your gross income. Sure, the perk value is taxable but it still works out to be more effective for tax planning, than opting for a HRA than doesn’t fully cover your rent.

 Leave Travel Concession (LTC):

While you may be fond of opting for a leave and travel with your family for a holiday, don’t forget to assess what tax benefits are extended to you for doing so. The Income Tax Act provides you tax concession if you have actually incurred expenditure on your travel fare

49

anywhere in India either alone or along with your family members (i.e. your spouse, children, parents, brothers and sisters who are mainly or wholly dependent on you). But such exemption is limited to the extent of actual expenses incurred i.e. you can claim exemption on the LTA amount OR the actual amount incurred, whichever is lower.

Also the exemption extended to you under the Act is for two journeys performed in a block of four calendar years. And the current block of four calendar years is from 2010 to 2013 (i.e. from January 1, 2010 to December 31, 2013); the next block will be from 2014 to 2017 (i.e. from January 1, 2014 to December 31, 2017).

As per the present Income Tax Rule, the exemption would be available to you in the following manner:

Particulars Amount exempt

Where the journey is performed by air

Amount of "economy class" airfare of the national carrier by the shortest route to the place of destination or amount actually spent, whichever is less.

Where the journey is performed by rail

Amount of air-conditioned first class rail fare by the shortest route to the place of destination or amount actually spent, whichever is less.

Where the places of origin of journey and destination are connected by rail and journey is performed by any mode of transport other than air.

Air-conditioned first class rail fare by the shortest route to the place of destination or amount actually spent, whichever is less. Where the place of origin of journey and destination (or part

thereof) are not connected by rail

> Where a recognised public transport exists First class or deluxe class fare by the shortest route or the amount spent, whichever is less.

> Where no recognised public transport system exists

Air-conditioned first class rail fare by the shortest route (as if the journey is performed by rail) or the amount actually spent, whichever is less.

(Source: Personal FN Research)

In case you have not availed of a LTC or have travelled just once in the four calendar year of the block period (2010-2013), then you are allowed to carry-over the concession to the first calendar year (2014) of the next block 2014-2017, but for only one journey. In addition to this, you will be eligible to travel two more times in the next block.

It is vital that you utilise your leaves wisely and travel to any of your loved holiday destination in India, as this will not only de-stress you, but also help you in reducing tax liability. After you have returned from your journey, in an excitement please do not tear your travel tickets /

50

boarding pass (for air travel) as you need to submit them to your employer so that your tax liability can be reduced.

 Education allowance:

If you are married with kids, and if your employer is providing with education allowance, then do not refrain from availing it, as this can again help you in reduction of your tax liability. The exemption extended to you under the Income Tax Act is Rs 100 per month for a maximum of two children (i.e. in other words Rs 2,400 p.a. totally). Similarly, if your children are staying in a hostel then a maximum of Rs 300 per month per child but subject to a maximum of two children will be available to you as an exemption (i.e. Rs 7,200 per month).

 Meal Allowance through Food Coupons / Food Cards:

While you may be tempted to increase your NTH (in the cash form) you should not ignore to avail the food coupon / food card benefit, if your employer provides one. This is because effective utilization of the same will enable you to effectively reduce your tax liability along with getting the feeling of being pampered by your employer.

The exemption amount which you can enjoy is Rs 50 per meal available only in respect of meals during office hours. However, the exemption is also available in case your employer provides you food vouchers / cards of value of which can be used at eating joints. The exemption limit in this case is restricted to Rs 2,500 per month for a food voucher / card value.

So remember, if your employer is providing you food coupon / card don’t refrain from availing the same for a maximum voucher value of Rs 2,500 every month.

 Medical reimbursement:

During the year if you and / or family members have visited a doctor or bought medicines from a chemist, then all the expenditure incurred by you and / or your family members during the year for medical purpose too, would help you in reducing your tax liability.

51

As per the Income Tax Act, the maximum amount of deduction available with you is Rs 15,000 for every financial year, and to claim the same you are required to submit, to your employer, the medical bills for the financial year stating the amount in total which you intend to claim. Similarly, it is noteworthy that if your medical insurance premium is paid by the employer or reimbursed, then that too will not be subject to tax. Also if your employer is providing medical facility in hospital or clinic owned by him, local authority, Central Government or State Government then medical expenditure incurred under such a hospital too, would not be subject to any tax.

So, next time when you get your pay cheques in hand please evaluate the aforementioned points, and assess whether every component in your salary is structured well – and to do so you can certainly talk to your Human Resource department, as they too may help you on this.

52