How to increase your tax savings by structuring your salary
How to increase your tax savings by structuring your salary
Phtoot credits: vector Stock

While changing jobs or finalising the salary for your first job, we often only focus on the Cost to Company (CTC) and do not focus on the amount of salary structure. The final amount that we take back home every month and the amount that is deducted as tax is heavily influenced by the salary structure.

What a lot of us do not know is that many employers are now to open to discuss the salary structure with their employees. While the primary structure cannot be altered, there is scope to design the structure to suit your needs.

Generally, the CTC is divided into four components, the basic pay, allowances, perquisites and retirement benefits/contributions. Each component is treated differently for taxation and can impact your tax liability.

Here’s how you can structure your salary to save taxes:

1. Basic salary

The basic salary is completely taxable, therefore, more the amount, more the taxes.

Junior employees can opt to have a lower basic salary and add to other allowances such as travel, medical reimbursement, conveyance allowance, telephone, etc. The senior employees need to have a heavy basic salary as they are also heavily taxed to extract most from tax benefits.

2. Allowance

Some allowances are exempted from being taxed by the Income Tax department, therefore, if these allowances are made heavier, employees can be saved from being heavily taxed.

3. Prerequisites

Certain prerequisites are also exempted from the taxed bracket, and therefore, similar to allowances, having a structure with heavy prerequisites will also add more to your take-home amount from the salary.

4. Retirement benefits

The retirement benefits are an important component of your salary, they are not payable to you immediately but in the long-term. Designing the right structure for an individual involves having the right retirement benefits’ ratio.

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Free Press Journal