1. HRA (House Rent Allowance) should be exactly 50% or more of the Basic Salary Portion in order to take maximum HRA exemption relief:
2. Transport Allowance should be increased to Rs. 19200 per Annum (or Rs. 1600 per month) – If not using company car;
3. Medical Reimbursements should be Rs. 15000 per annum (or Rs. 1250 per month) – These perks are tax free on submission of actual bills;
4. Phone Bill Reimbursements should be Rs. 18000 per annum (or Rs. 1500 per month) - These perks are tax free on submission of actual bills;
5. Special Allowance is fully taxable, hence all the above adjustments should be carried out from this portion of the salary in order to keep the CTC intact;
6. NPS (National Pension Scheme) should be 10% of your basic Salary. This should be done through your employer u/s 80CCD(2) – A word of caution: This will reduce your take home salary as this investments cannot be withdrawn before retirement
7. Invest Rs. 2,00,000 in PF, Life Insurance, PPF, NSC, ELSS, NPS etc every year;
8. Medical Insurance/ Mediclaim to the extent of Rs. 25000 (self & family) & additional Rs 25000 (Parents)
Illustration
Mr. Joydeep from TCS, Kolkata draws a reasonably high Salary (CTC 15 lacs), but due to poor Tax Planning, he pays away very high tax
|
Income Heads |
Existing |
Proposed |
Remarks |
|
Basic |
4,00,000 |
4,00,000 |
|
|
HRA |
1,25,000 |
2,00,000 |
Atleast 50% of Basic |
|
Special Allowance |
7,47,870 |
5,72,270 |
Reduce from here |
|
Transport Allowance |
0 |
19600 |
|
|
Employer Contribution to PF |
48,000 |
48,000 |
|
|
Phone Bills - Reimbursements |
0 |
18000 |
These perks are tax free |
|
Medical Reimbursements |
0 |
15000 |
|
|
Performance Bonus |
1,30,000 |
1,30,000 |
|
|
Food & meal Coupon |
26,400 |
26,400 |
|
|
NPS (through Employer) |
0 |
48,000 |
|
|
Gratuity |
22,730 |
22,730 |
|
|
TOTAL |
15 Lacs |
15 lacs |
TAX SAVING INVESTMENTS
|
Investments |
Existing |
Proposed |
Remarks |
|
Contribution to PF |
48,000 |
48,000 |
|
|
Life Insurance |
0 |
12,000 |
Term Cover for self is advisable |
|
ELSS |
0 |
50,000 |
Low Equity Exposure Suggested |
|
Public PF |
50,000 |
40,000 |
|
|
NPS – Employer |
0 |
48,000 |
|
|
TOTAL |
98,000 |
1,98,000 |
Other deductions
|
Heads |
Existing |
Proposed |
Remarks |
|
House Rent (Rs. 20,000 per month) |
2,40,000 |
2,40,000 |
|
|
Medical Insurance |
40,000 |
40,000 |
Observations
1. Taxable Salary decreases by Rs. 1,27,600 & Investments increases by Rs. 1,00,000;
2. Tax Savings per Annum – Rs. 70,328
3. Take Home Salary increases per month due to tax Savings – Rs. 6000
Note: Take home Salary also decreases by Rs. 4,000 as a part of retirement planning due to NPS component in the revised Salary
CA Ankit Agarwal
Blogger (www.precisezone.com/wp/)
Kolkata/ Siliguri/ Jaigoan
CAclubindia
