The income tax provision applies to all the individuals who have been eligible for the income tax bracket as decided by the government of India. The income tax slab starts from INR 5 lakh for individuals having income yearly. There are also certain provisions and deductions which can be done to save the taxes on even the eligible income tax bracket.
Here in the blog post, we will be finding out ways to save income tax even if the income surpasses the INR 20 lakh limit which is seen as a high-income bracket and this CTC also attracts higher tax than the lower bracket. However, we would be doing a detailed analysis of this particular tax-saving technique and would recommend going once through the post.
We are here to help by making your tax liability zero even if your cost to the company (CTC) is Rs 20.41 lakhs per annum for FY 2023-24.
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Suggestion to Consider for making Income Tax Zero when Income is Rs 20.41 Lakhs Per Annum
- Include all those components that are tax-free
- For availing most of the benefits or HRA, House Rent Allowance (HRA) should be ideally 50% of the Basic Salary (40% HRA if an individual has rented a house in a non-metro)
- In the case of Car Maintenance, The said company could reimburse up to Rs 1,800 every month for a car that is less than 1600 CC (i.e. Rs 2,400 every month in case of bigger cars) in addition to Rs 900 every month for the driver’s salary by way of tax-free allowance
- Employees may have the option of making a to both EPF and NPS.
- Giving a Gift Voucher by a company on a birthday or anniversary that is worth Rs 5000 per annum is tax-free
- Companies purchased and owned Cars provide much more Tax benefits.
Disadvantage of the Salary Structure Discussed here
However, there is one drawback to the entire salary structure. The disadvantage or drawback is that the monthly payout shall be lower. However, it is better for the future to save more money. At this juncture, It is better to quote the words of Stock market magnate Warren Buffett. “If you buy things you don’t need, you will soon sell things you need.”
Illustration of Tax Efficient Salary Structure
| Salary Components | Annual | Monthly | Remarks |
|---|---|---|---|
| Basic Salary | 9,54,000 | 79,500 | Fully Taxable |
| House Rent Allowance | 6,36,000 | 53,000 | It is Partially Tax exempted |
| Car Maintenance | 28,800 | 2,400 | They are Tax-free if bills are submitted |
| Meal Coupons | 26,400 | 2,200 | Tax free till Rs 50 per meal (22 working days) |
| EPF Contribution by EMployer | 1,27,200 | 10,600 | Tax-free up to 12% of the Basic Salary |
| NPS (Employer Contribution) | 1,06,000 | 8,833 | Tax-free up to 10% of the basic salary |
| Phone & Internet Bill Reimbursement | 36,000 | 3,000 | It is Tax-free if bills are submitted |
| Uniform Allowance | 24,000 | 2,000 | It is Tax-free if bills are submitted |
| Children’s Education/Hostel Allowance | 4,800 | 400 | It is Tax-free if bills are submitted |
| Newspaper/Journal Allowance | 12,000 | 1,000 | It is Tax-free if bills are submitted |
| Gift voucher | 5,000 | – | Tax-free up to Rs 5000 |
| LTA (Leave Travel Allowance) | 30,000 | – | It is Tax-free if bills are submitted |
| Gratuity | 50,962 | – | Paid while leaving the company |
| Cost to Company | 20,41,162 | 1,62,933 | – |
Below is the illustration of nearly 20.41 lakhs per annum.
| Sr. Number | Calculation of Income Tax on Salary | Applicable for FY 2021-2022 |
|---|---|---|
| 1 | Total Cost to Company | 20,41,162 |
| 2 | Tax-Free Components Car MaintenanceMeal CouponsNPS (Employer Contribution)EPF (Employer Contribution)Mobile Phone and Internet Bill ReimbursementUniform AllowanceChildren Education/Hostel AllowanceNewspaper/Journal AllowanceGift voucherLeave Travel Allowance | 4,00,200 |
| 3 | House Rent Allowance(Rent Paid is Rs 53,000 and that too in Metro City | 6,36,000 |
| 4 | Standard Deduction (It was increased to Rs 50,000 in the Budget 2019) | 50,000 |
| 5 | Gratuity (Not part of salary but component of CTC and is non-taxable) | 50,962 |
| 6 | Tax DeductionsSection 80C Exemption – 1,50,000NPS 80CCD(1B) Tax Exemption – 50,000Medical Insurance (Self & Parents) – 60,000Interest on Education Loan – 50,000 | 3,10,000 |
| 7 | Home Loan Exemption | 2,00,000 |
| 8 | Income after Deduction[1- (2+3+4+5+6)] | 3,94,000 |
| 9 | Basic Tax Exemption | 2,50,000 |
| 10 | Taxable Income[8-9] | 1,44,000 |
| 11 | Income Tax [5% of 10] | 7,200 |
| 12 | Rebate u/s 87A | 7,200 |
| 13 | Tax Payable [11-12] | 0 |
Tax-Exempted Salary Components
- Meal Coupons
- Car Maintenance
- EPF (Contribution by Employer)
- NPS (Contribution by Employer)
- Gift voucher
- Mobile Phone and Internet Bill Reimbursement
- Newspaper/Journal Allowance
- Children’s Education/Hostel Allowance
- Leave Travel Allowance
- Hostel Allowance/Children Education
- Uniform Allowance
Takeaways About Tax Deductions
An Individual could claim the following Tax Deductions:
- Section 80CCD(1B) (Rs 50,000): Investment in the NPS (Shall you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?)
- Section 80C/80CCC/80CCD (Rs 1,50,000): The Investment in the EPF, PPF, The Pension Plans, ELSS, FD, NPS, NSC, SCSS, Life Insurance, SSA and NPS. Also includes Tuition Fees, Home Loan Principal repayment, and Stamp Duty (The Best Tax Saving Investments under section 80C.
- Section 80E: The Interest paid on the Education Loan. There is no upper/lower Limit! (Tax Benefit on the Education Loan (Sec 80E))
- Section 24: The Interest paid on the Home Loan for the Self-occupied homes. No Limit for the Rented house.
- Section 80D: The Premium payment for the medical insurance for an individual and his parents. It further includes a Rs 5,000 limit for the preventive health checkup (Thus Making Sense of the Tax Benefit on Health Insurance under section 80D)
Glimpse of Monthly Pay Slip (After the Income Tax on the Salary):
Let’s have a glimpse of the salary slip when you have a package of Rs 20.41 lakhs and your tax payable is zero.
Gross Salary: 1,32,500
- Basic Salary: Rs 79,500
- HRA: Rs 53,000
Deduction: Rs 30,033
- EPF(Employer Contribution) – 10,600
- NPS (Employer Contribution) – 8,833
- EPF(Employee Contribution) – 10,600
- The Income Tax – 0
- The Net Salary= Rs 102,467 [1,32,500 – 30,033]
The Reimbursement (on the submission of bills) – Rs 1,35,600 (Yearly)
- Car Maintenance – 28,800
- Uniform Allowance – 24,000
- The Phone and the Internet Bill Reimbursement – 36,000
- Newspaper/Journal Allowance – 12,000
- Hostel Allowance/ Children Education – 4,800
- LTA (Leave Travel Allowance) – 30,000
Gift/Food Coupon – Rs 2,200 monthly
- Additionally, employees would get the Food Coupons that are worth Rs 2,200 every month
What does Retirement Savings Look Like?
The good aspect or Unique Selling Proposition of the above-mentioned salary structure is that a large component of salary is apportioned to the retirement savings
| Component | Employee Contribution | Employer Contribution | Total Contribution |
|---|---|---|---|
| EPF (12% of basic salary) | 10,600 | 10,600 | 21,200 |
| NPS (10% of basic salary) | 0 | 8,833 | 8,833 |
| Total | 10,600 | 19,433 | 30,033 |
