What a salary structure should include and how we can reduce our salary tax liability
This article will help us to figure out how to reduce your tax liability under salary head and how to set salary structure for AY 2020-21. This article will cover various allowances which any type of employees will able to claim in his or her return, also various types of deduction under chapter VI-A will be covered here along with details of various investments schemes.
I hope this article will help you in your tax planning.
| S. No | Sub head of Income | Taxability Treatment | ||||||||||||||||||||||||||||||
| 1 | Basic Pay | Always taxable | ||||||||||||||||||||||||||||||
| 2 | Dearness Allowance (DA) | Always taxable | ||||||||||||||||||||||||||||||
| 4 | Bonus | Always Taxable | ||||||||||||||||||||||||||||||
| 5 | Children Education Allowance | Rs. 100 per month per child.
i.e. max. Rs. 200 per month. (Max for 2 children) Total max benefit: Rs. 200*12 = Rs. 2400 |
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| 6 | Hostel Allowance for children | Rs. 300 per month per child.
i.e. max. Rs. 600 per month. (Max for 2 children) Total max benefit: Rs. 600*12 = Rs. 7200 |
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| 7 | HRA Exemption | HRA Exemption amount is least of the following
i) HRA Received ii) Rent Paid – 10% of Salary iii) 40% of Salary (50% if house situated at Mumbai, Kolkata, Delhi or Chennai) This can be reduced to zero by proper planning. [Note: Salary will be inclusion of Basic Pay plus Dearness Allowance (if provided by the terms of employment) plus commission based on fixed % of turnover] |
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| 8 | Leave Travel Allowance | LTA can only be claimed if the employee goes on a vacation as bills for the same would be required to furnished.
Exemption shall be available as per provisions of section 10(5) of Income Tax Act, 1961. |
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| 9 | Uniform Allowance | This allowance is exempt up to the amount spends by employee during the financial year.
This can also use for better tax planning and good salary structure. |
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| 10 | Telephone Allowance | This allowance is exempt up to the amount spends by employee during the financial year.
This can also use for better tax planning and good salary structure. |
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| 11 | Books Allowance | This allowance is exempt up to the amount spends by employee during the financial year.
This can also use for better tax planning and good salary structure. |
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| 12 | Recognised Provident Fund | Employer’s Contribution – Not Taxable upto 12% of salary
Employee’s contribution will be eligible for deduction under section 80C Any income earned on it will be exempt upto 9.5% Lumpsum payment received on retirement or termination of service will be exempt from tax subject to condition that minimum 5 years of service should be completed |
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| 13 | Section 80C
(Max benefit under section 80C, 80CCC, 80CCD (1) cannot exceed ` 1,50,000) |
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| 14 | Section 80CCD (2) | First taxable as salary and then deductible u/s 80CCD(2) upto 14% of employee’s salary in case of Government employees and 10% in case of Non – Government employees | ||||||||||||||||||||||||||||||
| 15 | Section 80CCD(1B) | Additional Contribution to NPS of Rs. 50,000. This is also available over and above the limit of Rs. 1,50,000 | ||||||||||||||||||||||||||||||
| 16 | Section 80G | Donation deduction is also available, if we donate in specified fund which mention in section 80G subject to limit specified in provisions of section 80G. | ||||||||||||||||||||||||||||||
| 17 | Section 80E
(Interest in Education Loan) |
Interest paid as part of education loan EMI is fully allowed as deduction. | ||||||||||||||||||||||||||||||
| 18 | Section 80EEA (Interest on home loan)
(From AY 2020-21 onwards) |
80EEA deduction is available only for those tax payers who own home for the first time, max amount available for deduction is interest payable on loan or Rs. 1,50,000 whichever is less.
Note: The stamp duty value of residential house property does not exceed Rs. 45 lakhs |
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| 19 | Medical Insurance |
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For the point of Investment, here we provide analysis among different investment plan, so that a person can easily choose on the bases of return, time and tax saving.
| Investment | Risk Profile | Lock in Period | Interest Rate |
| Senior Citizen Saving Scheme | Risk Free | 5 Years or 8 Years | 8.60% |
| Sukanya Samridhi Yojana | Risk Free | 21 Years | 8.40% |
| ULIP | Equity Related Risk | 5 Years | 8-10% Expected |
| Fixed Deposit | Risk Free | 5 Years | 7.50% |
| NSC | Risk Free | 5 Years | 8.10% |
| NPS | Equity Related Risk | Till Retirement | 8-10% Expected |
| PPF | Risk Free | 15 Years | 7.9% |
| Equity Linked Saving Scheme | Equity Related Risk | 3 Years | 12-15% Expected |
I hope you found your answer in above article, if you have any doubt you may directly contact to me on my mail id [email protected].
Thanks a lot for giving you precious time.
(Republished with Amendments)
Author Bio
Hi
The benefit of Food coupons @ Rs. 50/- per meal for 26 days can be taken too. (Sodexho or Ticket restaurant etc.)
Can you please elaborate on loss in share trading during the year. Also the loss in previous FY
Sir, What are claim itc on Insurance on Stock and Building Expenses ?
Precise and good to understand.
Thanks
Dear Mr Krhar,correct yourself with PF point -114 80CCD(2) is related to NPS and that is employer part of 10% of basic ..
thx