Page 253 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes 10.4.3 Salary Restructuring

You can define salary restructuring as the process of redesigning your salary in such a way that it

results in minimisation of total tax liability. While restructuring your salary include the following
questions to enable you to reduce your tax liability to minimal:
1. See whether your employer provide House Rent Allowance or Rent Free Accommodation
or not. If yes than include it in your salary as it gets deducted from your total taxable
salary
2. If uniform is mandatory
3. in your organisation than make sure that you take the advantage of expenses that you incur
on purchasing and maintaining uniform as it is not charged to tax.
4. Does your salary structure include children education and hostel allowance? You can claim
it as exemption under Section 10 (14).
5. Are you availing any telephone facility? It is non-taxable. But it does not include telephone
allowance which is fully taxable.
6. Take advantage of Car facility if provided by employer as the value of motor car as a perk
is quite inferior to the actual expenses incurred on car.
7. At time of visiting doctor use medical reimbursement to save up to ` 15,000 per annum but
not medical allowance as it is fully taxable.

8. Take the benefits arising out of Fringe Benefit as it tax-free in hands of employees.
9. You can also take the advantage of salaries paid in advance or salaries that are in arrear
under Section 89 (1).
10. Inclusion of dearness allowances and commission will help you lower your tax liability on
HRA, pension and gratuity payments.
11. Try to commute your pension as it is partially exempted from non-government and fully
exempted for government employees.
12. If your previous employer was participating authorised provident fund, and going for job

change within 5 years from joining the firm than make sure that your new employer is also

affiliated to an authorised provident fund enabling transfer of corpus without any tax.

13. You can plan your resignation or retirement at beginning of the financial year to lower
your retirement benefi t tax.
14. Try to take the advantage to the highest possible level regarding leave travel concession.

Example: Mr. A has an annual salary of ` 3,00,000. He gets HRA for ` 20,000, Medical
reimbursement for ` 6,000. He also received an allowance of ` 16,000 for his daughter’s education.
Mr A’s total Taxable Salary is now = ` 2,58,000 (3,00,000 – 20,000 – 6,000 – 16,000) instead of
` 3,00,000.
Therefore after restructure your salary you can opt for any of the following tax saving instruments
to take advantage of maximum exemption up to ` 1, 00,000:
1. Insurance: Payment made in respect of health and life insurance is eligible for tax benefi t.
Health insurance over and above the upper limit of ` 1, 00,000 can provide you a benefi t of
` 15, 000.
2. Public Provident Fund: Both capital and interest are tax free.

3. Post office Accounts/National Saving Certifi cates: These are the saving schemes of the
government with lock-in period of 5 years available at post offi ce.
4. ELSS: Equity Linked Saving Schemes offered by mutual funds provide investment option
in various qualities of stocks.

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