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Salary composition: transactions and strategies to be used

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(This story originally appeared in February 2, 2021)

New Delhi: A salary The structure consists of several parts, which can help people reduce the tax burden. The following are some of the components that employees can use to reduce the tax burden.


Housing rent allowance (game)


This is the most common CTC component. Those who live in rented accommodation can be exempted from the HRA received, and only the balance is taxed.

Exemptions are limited to the lowest

  • Rent is less than 10% of salary
  • If the house is located in Delhi, Mumbai, Kolkata or Chennai, 50% of the salary*, or 40% of the salary in other cities
  • Actual HRA received

If your CTC does not include HRA, you can deduct the rent paid from your total taxable income, subject to various restrictions (up to 5,000 rupees per month). If you live in a house that you own, the HRA portion should be fully taxed.

*Salary refers to basic salary and pension *Salary refers to basic salary and pension

Family expenses work

If you work full-time from home and your employer is reimbursing certain expenses, such as telephone, internet, printing and stationery expenses, you do not need to pay taxes on these reimbursements. According to company policy, you may need to provide your employer with the necessary bills to apply for these reimbursements.

Although the computers and laptops provided by the employer will not generate any taxable allowances, the provision of any other assets, such as swivel chairs, computer desks or printers, will be taxed as allowances for employees in accordance with Rule 3 (7) (vii). , 10% of the original cost of the asset minus any expenses recovered from employees.

Departure travel discount (LTC)

Two domestic trips within four years allow LTC exemptions. The new block started on January 1, 2018. There are restrictions. For example, if you travel by air, you are limited to economy class tickets that are the shortest route to your destination.Hotel and local transportation fees are not waived

Taxpayers can enjoy 5 income tax deductions

Types of tax incentives

The Income Tax Law provides taxpayers with various tax deductions, whether it is wage allowances or investment. These help reduce one’s tax expenditures. Your income comes from five broader sources, namely wages, real estate, business, capital gains (profit/loss) from investments, and finally other miscellaneous sources. The following are the five types of tax incentives provided to individuals under the Income Tax Law.


Leave to cash out


If you haven’t taken the vacation you deserve, you can choose to cash it out-your employer may only allow this when you retire or resign. The maximum cumulative exemption that can be obtained in a lifetime is 300,000.

LTC Cash Coupon Program

You may have planned to travel in 2020 (during the four-year lockdown period beginning January 1, 2018), but found yourself trapped at home due to the pandemic. Well, if you do not choose a simplified personal tax system, you can take advantage of the LTC cash voucher program to allow you to purchase some goods and services. However, some conditions must be met:

  • Between October 12, 2020 and March 31, 2021, you need to purchase goods or services worth three times the LTC fare. If you spend less, you cannot get a full exemption. For example, if the LTC fare for a family of four is 80,000 rupees, the employee needs to spend 240,000 rupees. But if he only spends 75% of this amount (180,000 rupees). In this case, only Rs 60,000 (considered as 75% of LTC) is eligible for tax exemption.
  • This money must be spent on goods or services with a consumption tax of 12% or higher.
  • Payment must be made digitally, and employees must present a GST invoice.
  • Duty-free will be limited to recognized LTC fares up to 36,000 rupees per person. This exemption only applies to the 2020-21 fiscal year.

Employees Provident Fund (Provident Fund Board)

Withdrawal of PF after five years of continuous service or more is tax-free. However, the interest earned on the accumulated balance in the PF account after employment or retirement is taxable. If the employee’s contribution to PF on or after April 1, 2021 exceeds Rs 250,000 in any year, the interest on the contribution exceeding Rs 250,000 shall be taxed at the time of withdrawal.

tip

Remuneration received under the Remuneration Payment Act after completing 5 years of continuous service is eligible for an exemption of up to Rs 2 million. But remember, the exemption is the accumulation of all the honorariums an individual receives in his lifetime.

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