Generally employee and specially employer are ignorant regarding the taxation issues of the salary paid. Employee gives least importance to the structuring of the salaries and he tries to take the max benefits from the deduction granted under chapter VIA.
These ignorance puts him in the soup and he have to pay more taxes on his salary and makes more qualified investment which again give rises to cash crunch position.
It is the common practise of the employer to design the salary structure with out any proper tax planning on the employees’ part. A little awareness among the employees can allows them to save maximum tax and invest minimum in the qualified investment.
Do these things to save taxes on salary :
1. Dearness allowance and dearness pay must form part of basic salary. This will minimise tax incidence on house rent allowance, gratuity and commuted pensions and also on employer’s contribution to the recognised provident fund.
2. As uncommuted pension is always taxable, employee should get their pension commuted. Commuted pension is fully exempted in case of government employee and partly exempted for the non-government.
3. An employee, being a member of recognised provident fund, who resigns before completing five years of continuous service, should join a firm which maintain a recognised provident fund for the simple reason that the accumulated balance will exempted, provided the new employer maintains the recognised provident fund.
4. Since employer contribution to PPF is exempted to the 12% of Salary, employer may get the extra benefits to their employee by raising their contribution to 12% of salary with out increasing there tax liability.
5. Medical allowances paid in cash are taxable where as provision of ordinary medical facilities is exempted so same must be preferred.
6. Pension received in India by the non-resident assessee from aboard is taxable where as if received in foreign country and than remitted to India than fully exempted.
7. Perquisites in respect of Residential Telephone, Providing use of computer/laptop, gifts of movable assets (other than computer, electronic items, Car) by the employer after using for 10 years or more and free refreshments during office hour, are not taxable.
8. If a rent free furnished or unfurnished accommodation is provided by the employer at confessional rent, deduction under sec 80GG can be claimed if certain condition is satisfied.
By exercising these options an employee can easily save considerable amount of Taxes which an employer will never ask his employees to do
These ignorance puts him in the soup and he have to pay more taxes on his salary and makes more qualified investment which again give rises to cash crunch position.
It is the common practise of the employer to design the salary structure with out any proper tax planning on the employees’ part. A little awareness among the employees can allows them to save maximum tax and invest minimum in the qualified investment.
Do these things to save taxes on salary :
1. Dearness allowance and dearness pay must form part of basic salary. This will minimise tax incidence on house rent allowance, gratuity and commuted pensions and also on employer’s contribution to the recognised provident fund.
2. As uncommuted pension is always taxable, employee should get their pension commuted. Commuted pension is fully exempted in case of government employee and partly exempted for the non-government.
3. An employee, being a member of recognised provident fund, who resigns before completing five years of continuous service, should join a firm which maintain a recognised provident fund for the simple reason that the accumulated balance will exempted, provided the new employer maintains the recognised provident fund.
4. Since employer contribution to PPF is exempted to the 12% of Salary, employer may get the extra benefits to their employee by raising their contribution to 12% of salary with out increasing there tax liability.
5. Medical allowances paid in cash are taxable where as provision of ordinary medical facilities is exempted so same must be preferred.
6. Pension received in India by the non-resident assessee from aboard is taxable where as if received in foreign country and than remitted to India than fully exempted.
7. Perquisites in respect of Residential Telephone, Providing use of computer/laptop, gifts of movable assets (other than computer, electronic items, Car) by the employer after using for 10 years or more and free refreshments during office hour, are not taxable.
8. If a rent free furnished or unfurnished accommodation is provided by the employer at confessional rent, deduction under sec 80GG can be claimed if certain condition is satisfied.
By exercising these options an employee can easily save considerable amount of Taxes which an employer will never ask his employees to do
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