Tax Efficient Salary Structure
Understanding How To Make Salary Tax Efficient
Hello and welcome to Part 20 of the income tax education series brought to you by H&R Block, the global leader in
filing income tax returns.
Today we will understand how you can structure your salary in order to make it most tax efficient.
A tax efficient salary structure is that which minimizes taxes and hence gives you a larger share of take home salary. The most ideal way of doing this is to keep the basic salary low and add components like HRA,
LTA, corporate attire or uniform allowance, conveyance allowance and medical expenses reimbursement so that you get tax exemptions. These allowances are exempt from tax up to a certain percentage and hence reduce the taxable salary. E.g. Sriram earns a salary of Rs. 60,000 per month.
A tax efficient salary structure for him would be a basic salary at Rs. 20,000, HRA Rs. 10,000, conveyance allowance Rs. 1,600, LTA Rs. 4,000, medical allowance Rs. 1,250, uniform allowance Rs. 1,500, special allowance Rs. 21,650. This ways he will be able to claim maximum benefit for HRA against rent paid,
entire conveyance allowance exemption of Rs. 1,600 pm, medical allowance exemption of Rs. 1,250 against bills submitted and LTA allowance exemption for 2 journeys in a block of 4 years. This will substantially reduce his taxable salary leading to less tax cutting and hence a tax efficient salary structure.
I hope you found this useful. If you have any further questions on this topic, please
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