There are a lot of ways to save on tax or the amount of TDS that your employer deducts from your salary.
Here are a few ways in which you can reduce taxes and increase take home pay:
a) Keep Basic Low
If you are in the 20 per cent and 30 per cent tax bracket it makes sense to keep your basic pay low and increase the other tax free allowances. Also, you can increase the HRA level if you are likely to stay on rent, as rent paid is exempt from taxes as per the prevailing norms. This can form substantial savings. Read more on HRA and Tax Benefits here
b) Medical Allowance and Tax Benefits
If you submit medical bills you gain exemption up to Rs 15,000 per year. Make sure your salary break-up includes medical reimbursement. However, you need to submit medical bills at the end of the year to claim this exemption.
c) Food Coupons Vouchers and Tax Exemption
Ask for meal coupons. These are tax exempt up to Rs 50 per meal per day. So, if you are working 5 days in a week it could help reduce your salary by at least Rs 2,500 and hence tax benefit according to your tax slab. Read More on tax benefits on food coupons here
Quick Look At The Tax Benefits on Various Salary Components
|Basic Salary|| |
|Transport Allowance||Exempt up to Rs 1,600 per month|
|Meal Coupons||Exempt up to Rs 50 per meal|
|HRA||Depends if rent is paid. Exemption based on a calculated formula|
|Children education Allowance|| |
Up to Rs 100 per month per child
It is exempt two times in a block four years period. This exemption can be claimed once in period of two years.
|Provident Fund|| |
Can claim Tax Benefits Under Sec 80C of the Income Tax Act
d) Make Sure Your Salary Has An LTA Component
Make sure that you salary has an LTA component as LTA is tax exempt. However, for the purpose you have to produce bills of travel expenditure incurred. You can get Leave Travel Allowance for travelling expenditure in India. It is exempt two times in a block four years period. This exemption can be claimed once in period of two years.
If you are paying rent then it is advisable to work the salary in such away that your full rent amount is covered and you get a tax break. Again, you may have to keep your basic salary low for the purpose.
f) Take Up Consultancy
You can also opt to become a consultant and take money from the company. This would mean that you would be taxed as income from profession and can claim a whole lot of deductions for the purpose of computing your tax liability.