Author : Khyati Dharamsi/DNA-Daily News & Analysis
With tax reduction being the motive of job seekers, both employers and employees prefer a mix of basic salary and reimbursements. These allowances are being used by human resource executives to attract and retain their employees.
In recent times, some employers are known to have augmented their employees' allowances by adding two free-meals in a month with family to the CTC (cost-to-company) package. Other allowances are mobile expenses, travel expenses, leave travel allowance, dressing allowance, insurance, etc.
According to experts, salary structures where allowances outweigh the basic salary are not too healthy, when it comes to borrowing from banks. People who have visited banks asking for a loan might be aware of the perils of having a higher proportion of allowances. Banks ignore the allowance portion of the salary.
"Your basic salary is only Rs XX lakh. You won't be able to avail the loan," says the bank officer.
You will contest saying, "My CTC is higher than what you have just mentioned." Don't expect the bank to budge and fall for your argument. Some loan application forms clearly ask for only the basic salary.
The logic behind considering only the basic salary is that allowances are given tax-free against bills submitted to the limit. Banks and financers do not consider allowances to be a constant source of income. As a result the equated-monthly-installment paying ability cannot be decided on variable income.
If you can provide the bank or the financer a proof indicating that you have been regularly getting the allowances each month, they may reconsider its decision. After all, it's not always good to try to save tax outgo alone.
Under license from 3D Syndication