HOW TO PLAN ZERO TAX ON ANNUAL PAY OF RS.4.50 LAKHS?

Minimize Tax on even Higher Incomes

Through Intelligent Pay Packet Planning!

Are you aware that as a salaried taxpayer you can conveniently structure your annual pay package of up to Rs.4,50,000 on a Zero Tax Basis?This would ofcourse depend on the kind of allowances and perquisites you receive keeping in view the facts and circumstances of your case. Readers will recall the elaborate elucidation of such allowances and perquisites in ‘Tax Clues’ last Monday (March, 28).

Here is an illustrated pay package under which the allocation of your salary, allowances and perquisites could be structured:

• Basic and D.A. of Rs.3,00,000.

• Transport Allowance of Rs.800 per month for meeting to and fro expenses from your home to office. Annually Rs.9,600 can also be claimed by you as exempt under Section 10(14).

• Conveyance Allowance of Rs.4,000 per month for discharging your official duties.  

     Annually Rs.48,000 can be claimed by you as exempt under Section 10(14).

• Uniform Allowance of an annual amount of Rs.30,000 towards purchase and Rs.500 per month (annual Rs.6,000) to meet the expenses for washing and maintenance of uniform. Thus, annually Rs.36,000 can be claimed by you as exempt under Section 10(14).

• On the basis of your two children being educated at school or college, Children’s Education Allowance for each child at Rs.100 per month can be claimed exempt by you under Section 10(14) at Rs.2,400 annually.

• Reimbursement of medical expenses of upto Rs.15,000 annually can be claimed exempt by you under Section 17(2).

• Food Coupons or Paid Vouchers provided by your employer being treated as exempt perks on the basis of Rs.50 per meal, such coupons for a value of Rs.1,250 per month (for 25 working days), annually Rs.15,000, can be planned under the package and claimed exempt.

• Since reimbursement by an employer of the telephone expenses incurred by an employee is also treated as a tax free perk, an annual amount of Rs.24,000 (Rs.2,000 per month) can be structured as part of the pay package.

 

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ILLUSTRATED TAX FREE ANNUAL PAY PACKAGE OF RS.4,50,000            

 Classification                                    Taxable Income Rs.            Exempt income Rs.                             

• Basic & DA                                       3,00,000

• Transport Allowance                             —                                 9,600

• Conveyance Allowance                         —                               48,000

• Uniform Allowance                               —                                36,000

• Children’s Education Allowance            —                                 2,400

• Reimbursement of Medical Expenses   15,000

• Food Coupons                                         —                            15,000

• Re-imbursement of Telephone Expenses    —                            24,000

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                                                                      3,00,000                  1,50,000

 

Less:  Deduction u/s. 80C                                 1,00,000

          Deduction u/s. 80CCF                                20,000

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TOTAL INCOME                                               1,80,000 

 Tax Payable: Zero

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In the above case, the various allowances and perquisites to the extent of Rs.1,50,000 as shown hereinabove would be exempt, leaving your taxable salary at Rs.3,00,000 out of the total pay package of Rs.4,50,000.

You can plan appropriate investments or allocations by way of contribution to PF or PPF, payment of Life Insurance Premium etc. upto Rs.1,00,000 which are eligible for deduction under Section 80C and investment in long-term infrastructure bonds upto Rs.20,000 under Section 80CCF and thus ensure that your Total Income stands reduced to Rs.1,80,000. This being within the basic exemption limit for the financial year 2011-12, the income-tax payable thereon would work out to ‘Nil.’ You can thus effectively enjoy a ‘Zero Tax Status’ in respect of your total pay package of Rs.4,50,000.

 

MORE ADD-ONS & TOP-UPS ALSO AVAILABLE!

• Depending on the facts of your case, the quantum of exemption of some allowances such as LTC, Conveyance Allowance (or a Concessional Car Perk), Uniform Allowance etc. could vary and would call for suitable review and upward revision.

• In case you are paying house rent, you can claim exemption of upto 40% (50% in Four Metros) of your salary under Section 10(13A) in respect of House Rent Allowance.

• If you have invested in a house of your own, you would be entitled to claim interest of upto Rs.1,50,000 on housing loan as a special deduction under Section 24.

• Deduction in respect of payment of medical insurance premium within the limit of Rs.15,000 or Rs.20,000 under Section 80D.

AVERAGE RATE OF TAX ON PAY PACKETS OF RS.4.5 LAKHS TO RS.13 LAKHS

Gross Salary	Tax Free Allow. & Perks	Other (Sec.24/80) Deductions	Taxable Salary	Income-tax thereon	Average Tax Rate – %
4,50,000	1,50,000	1,20,000	1,80,000	Nil	Zero
6,00,000	1,50,000	1,20,000	3,30,000	15,000	2.50%
7,50,000	1,75,000	1,85,000	3,90,000	21,000	2.80%
9,00,000	1,75,000	1,85,000	5,40,000	40,000	4.44%
10,50,000	2,00,000	2,35,000	6,15,000	55,000	5.24%
12,00,000	2,00,000	2,85,000	7,15,000	75,000	6.25%
13,50,000	2,00,000	2,85,000	8,65,000	1,05,000	7.77%
Note: Tax free allowances & perks and other deductions have been increased in case of higher gross salaries, considering availability of add-ons & top-ups, based on higher liquidity with the employee.