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How Salary Restructuring Help in Saving Tax?
Abhishek Sharma
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How Salary Restructuring Helped in Saving Tax?

Bengaluru-based software professional Kiran Manjrekar earns a handsome salary, but almost 20% of it goes into tax because his pay structure is very tax unfriendly. Taxspanner estimates that Manjrekar can save more than Rs.1.25 lakh in tax if his company agrees to give him some common tax-free perks and also extends the NPS benefit to its employee

Structure - Salary structure

The only tax-free perks in Manjrekar’s pay package are the HRA and the LTA. Even these he is not able to claim fully. He pays a rent of Rs.60,000 but due to the high basic salary, can claim exemption for only Rs.41,250 (rent paid minus 10% basic). “My LTA is also fully taxed because I am not able to travel and claim it,” he says.

structure - investment structure

Manjrekar should ask his company to give him conveyance reimbursements. If he gets fuel and conveyance reimbursement for Rs.5,000 a month, his annual tax will reduce by almost Rs.19,000. He should also ask for meal coupons (Rs.2,000 per month), newspaper allowance (Rs.1,000) and telephone allowance (Rs.1,500). These three perks can reduce his tax by another Rs.17,000. In the post-Covid work-from-home environment, Manjrekar also needs a gadget allowance. An allowance of Rs.60,000 will cut his tax by Rs.19,000.

info - tax info

Big tax savings will come if his company agrees to extend the NPS benefit to its employees. Under Section 80CCD(2), up to 10% of the basic salary put in the NPS is tax free. If his company puts Rs.18,750 (10% of his basic pay) in the NPS every month, Manjrekar’s annual tax will be cut by more than Rs.70,000. 

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