people don't know about these and loose tons of money in Taxes
First let’s get an insight into what is exactly meant by salary :
The total amount of money that an employee is paid every year to do their job, or one of the payments they receive each month as a part of it. It is the fixed amount of money paid to an employee for the work he/she is employed to do. Salary is also determined by leveling the pay rates and salary ranges established by an individual employer. Salary is also affected by the number of people available to perform the specific job in the employer’s employment locale.
The Concept Of Salary Slip
A salary slip of an employee contains a lot of components. Some of them include ‘Tax Free Salary’ components while others are ‘Taxable’.
Here is a list of components in your salary that is tax free
I. Children Education Allowance
Rs.100 per month per Child and Rs.300 for Hostel Expenditure for maximum of two children is a tax free salary component.
II. House Rent Allowance (HRA)
HRA is present by default for most salaried employees. However, the percentage of HRA as part of basic salary is sometimes not optimal. For most optimal HRA – your HRA should be 50% of your Basic Salary in case you stay in metro and at least 40% in case you live in other than metros.
III. Uniform Allowance
Amount up to Rs 24,000 per annum is tax free, but this cannot be given for normal clothes. This is more common in manufacturing units where they have a dress code; it would be difficult to implement the same in the IT/ITES sector.
IV. Newspaper/Journal Allowance
Amount up to Rs 12,000 per annum is tax free against submission of bills.
V. Leave Travel Allowance (LTA)
LTA is tax free only when you get your travelling expenses reimbursed from the company on submission of the bills. You can claim LTA twice for two domestic trips with your family in a block of four years.
VI. Meal Coupons
Meal Coupons like Sodexo or Ticket are tax free subject to Rs 50 per meal. Assuming 22 days working month and 2 meals a day, meal coupons up to Rs 2,200 per month are tax free. Annually this amount comes to Rs 26,400.
VII. Mobile Phone and Internet Bill Reimbursement
The reimbursement of mobile and internet bills used for company purposes is tax free. The amount of reimbursement is fixed by the company depending on work profile.
Tax Free Salary Components which are no more Valid
I. Medical Reimbursement
Medical Reimbursement is No more Tax Free for FY 2018-19 as Budget 2018 introduced a Standard Deduction of Rs 40,000 for salaried and subsumed Medical Reimbursement and Transport Allowance in the same.
II. Transport Allowance
Transport Allowance is No more Tax Free for FY 2018-19 as Budget 2018 introduced a Standard Deduction of Rs 40,000 for salaried and subsumed Medical Reimbursement and Transport Allowance in the same.
Above were the salary components which were tax free in the past but have been abolished since then.
If companies give all the above allowances, here is a rough estimate of how much you can save.
A lot of tax saving can happen by optimising and introducing the right tax free salary components. So you should not only focus on CTC (Cost to company) but also look into the salary structure and components. Some companies allow you to design your own salary components keeping the CTC fixed. It’s a great initiative and you should take advantage of all the components above.