Structuring of Salary for Efficient Tax /Converting to FBT

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Sanjay Jain (Querist)
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09 February 2009 Hi Experts,

Can any one help in structuring a salary package of INR 21L per annum for availing max tax benifits, even by converting most of the payments into FBT category, wherein the company is prepared to bear FBT, which is of-course much less than an individual paying IT @ 33% for this bracket.
Any calculation in MS excel / tips welcome

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)
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09 February 2009 Whether the payer is private or public limited company.

What is the age of the receiver.
His number of dependants.
Whether he is having already own house.

His present life policies.

If you provide all these details then we can easily chalk out a good package with less tax outflow.

Sanjay Jain

Sanjay Jain (Querist)
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09 February 2009 Dear Mr. Srinivasulu,

Here are the answers:
1) Payer works for a liaison office of a foreign company in India
2) Age - 40 Yrs
3) Dependents - 3+2(parents)
4) Yes a house with interest component 0.85L.
5) Life policies - 24L Term (Prem-0.15L)/ 2L Triple Endowement (Prem -0.05L)

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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25 July 2025 Thank you for the detailed info — it really helps in structuring a **tax-efficient salary** of ₹21 lakhs per annum (**pre-FBT regime**, as this query refers to the **old Fringe Benefit Tax structure applicable before FY 2009-10**).

Here's a custom salary structuring approach based on your scenario (liaison office, age 40, 3+2 dependents, housing loan, life insurance policies, etc.).

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## ✅ Background (Pre-2009 Context):

In FY 2008–09 (AY 2009–10), **Fringe Benefit Tax (FBT)** was applicable on several perquisites paid by the **employer**, **not the employee**. Since your company is willing to bear the FBT, it can be **more tax-efficient** than the employee paying personal income tax at **33.99% (highest slab at that time)**.

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## 🧩 Salary Package Breakdown — ₹21 Lakhs p.a.

Let’s divide this into:

1. **Direct Salary Components (Taxable in employee’s hands)**
2. **FBT Components (Taxable to employer only)**
3. **Exempt / Reimbursable Benefits (Partially/fully tax-free)**

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### 1️⃣ **Direct Salary (Taxable to Employee)** – Approx ₹10–11L

| Component | Amount (₹) | Tax Treatment |
| ------------------------------------ | ----------- | --------------------------------------------------------- |
| Basic Salary | 5,00,000 | Fully taxable |
| HRA | 2,00,000 | Exempt u/s 10(13A) (you own house, so less benefit) |
| Special Allowance | 1,50,000 | Fully taxable |
| Provident Fund (Employer + Employee) | 1,20,000 | Employer's share exempt; employee's is deductible u/s 80C |
| Bonus / Performance Pay | 1,00,000 | Fully taxable |
| **Total (Direct Taxable Salary)** | **\~10.7L** | Slab taxed (u/s 115BAC not relevant in this year) |

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### 2️⃣ **FBT-Supported Components** – Approx ₹6–7L

These are **not taxable to the employee**, but **FBT is paid by the employer** (at \~30% + surcharge). Still cost-efficient overall.

| Component | Amount (₹) | Benefit |
| ------------------------------------ | ---------- | ----------------------------- |
| Car Lease (self-use + fuel + driver) | 2,40,000 | Fully tax-free to employee |
| Food Coupons (up to ₹50/day) | 12,000 | Exempt up to ₹2,200/month |
| Gift vouchers | 5,000 | FBT on employer, not employee |
| Travel for family / LFC | 1,00,000 | FBT applicable |
| Club Membership / Gym | 50,000 | FBT on employer |
| Gadgets/Laptop | 1,00,000 | Fully exempt if used for work |
| **Total (FBT Components)** | **\~6.9L** | Not taxed in employee hands |

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### 3️⃣ **Exempt Reimbursements / Deductions** – ₹3–4L Benefit

| Head | Amount (₹) | Remarks |
| -------------------------------- | ---------------- | -------------------------------------------------- |
| Medical Reimbursement | 15,000 | Exempt u/s 17(2) (pre-FY2018 rule) |
| Telephone/Internet reimbursement | 20,000 | Fully exempt if bills submitted |
| Interest on Housing Loan | 85,000 | Deduction u/s 24(b) |
| Life Insurance Premiums | 20,000 | Deduction u/s 80C |
| EPF Employee contribution | 60,000 | Deduction u/s 80C |
| Education fees (if applicable) | 24,000 | 80C benefit |
| Mediclaim Premium | 15,000 | Deduction u/s 80D |
| **Total Deduction Benefit** | **\~2.4L to 3L** | Effective net taxable income reduces significantly |

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## 🧮 Approximate Tax Outflow

| Income Component | Value (₹) |
| --------------------------------- | ------------- |
| Gross CTC | 21,00,000 |
| Less: FBT-handled components | \~7,00,000 |
| Less: Reimbursements & deductions | \~3,00,000 |
| **Taxable in your hands** | \~11,00,000 |
| **Tax payable (incl. cess)** | \~1.85L–2.00L |

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## ✅ Summary Salary Structure (Optimized for FY 2008–09)

| Type | Amount (₹) |
| -------------------------------------- | ----------------------------------------- |
| Taxable Salary (Employee) | 10.7L |
| FBT-Based Benefits (Employer pays tax) | 6.9L |
| Exempt & Deductible Elements | \~3.4L |
| **Effective Tax Outflow** | Lower than flat 33% slab tax on full ₹21L |

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## 📊 Want Excel Format?

I can prepare and share an **Excel salary template** that shows:

* Component-wise monthly/yearly breakup
* Tax calculations with & without FBT route
* FBT cost vs personal income tax cost comparison

Just let me know, and I’ll generate it for you!

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**Note:** Since FBT was abolished in **FY 2009–10** (Budget 2009), this structuring is applicable only till **31 March 2009**. Post that, perks became taxable in the employee's hands again.

Let me know if you’d like a version adapted to the **current tax regime** instead.

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