Mukesh Patel.in
practical tax & investment planning online
international tax expert / columnist / author / speaker

IS YOUR PAY PACKAGE REALLY TAX FRIENDLY?

IS YOUR PAY PACKAGE

REALLY TAX FRIENDLY?

Enjoy Zero Tax on Rs.4.20 lakhs to just 7.77% on Rs.13.5 lakhs

By Smart Planning of your Annual Pay Package & Deductions!

                  The Income-tax Act provides for a number of allowances and perquisites which have been notified as tax free and every salaried taxpayer must endeavour to negotiate his pay package in a manner that the same can include such tax free allowances and perquisites. This would ensure that he is able to take maximum take-home pay per month with the minimum deduction of tax.   

TAX FREE ALLOWANCE AND PERQUISITES

Some of the important tax free allowances and perquisites are listed here under:

  • Reimbursement of Medical Expenses: Section 17(2) provides for exemption in respect of reimbursement of medical expenses up to Rs.15,000 per annum paid by the employer, in respect of such expenditure incurred by the employee on the medical treatment of self or any member of his family.

  • House Rent Allowance (HRA): Section 10(13A) provides for exemption in respect of House Rent Allowance (HRA) received by an employee from his employer. In case the employee is actually required to incur expenditure on payment of rent, the amount of exemption is determined on the basis of least of the following three amounts:

  • HRA actually received.

  • Rent paid in excess of 10% of salary.

  • 50% of salary if the house is situated at Mumbai, Kolkatta, Delhi or Chennai and 40% of salary at all other places.

         Keeping in view the above, the salaried taxpayer would effectively get the benefit of HRA exemption if the actual house rent paid by    him is in excess of 10% of his salary.

  • Leave Travel Concession (LTC): Section 10(5) grants exemption in respect of the amount of Leave Travel Concession (LTC) received by an employee from his employer, in respect of the reimbursement of actual travel fare incurred in respect of the journey undertaken not only by the employee, but also by his family to any place in India. This exemption can be availed of in respect of two journeys performed in a block of four calendar years. The current block is for calendar years 2010 to 2013. The quantum of exemption is subject to Rules laid down for the purpose, which provide for a limit to the extent of the economy class air fare or air-conditioned first class train fare.

  • Conveyance Allowance and Transport Allowance: The Conveyance Allowance granted by the employer to the employee to meet the expenditure incurred on conveyance in performance of his official duty is treated as exempt under Section 10(14) in the case of all employees to whom no free conveyance is provided by the employer. There is no monetary limit for exemption in this regard. Moreover, a transport allowance of up to Rs.800 per month granted by the employer to the employee to compensate him for the cost incurred on account of commuting between his residence and place of duty has also been notified as exempt under Section 10(14).

             In a case where the employee is provided a car and reimbursed all expenses for running and maintenance of such car by his  employer, he cannot claim the above referred conveyance and transport allowances, but can in turn plan to avail the benefit of concessional valuation of perquisite under Rule 3 of the I.T. Rules.

  • Uniform Allowance: Any allowance granted by the employer to the employee to meet the expenditure incurred on the purchase or maintenance of uniform (or office attire) for wear during the performance of official duties is also treated as exempt under Section 10(14). There is no monetary limit for exemption in this regard.

  • Helper Allowance: Any allowance granted by the employer to the employee to meet the expenditure incurred on a helper engaged for the performance of official duties is also treated as exempt under Section 10(14). To illustrate, Helper Allowance could be received by an employee who engages a driver or a secretarial assistant for helping him to discharge his official duties. There is no monetary limit for exemption in this regard.

  • Academic, Research or Professional Pursuit Allowance: An allowance granted by the employer to an employee working in an educational or research organization for encouraging academic or research work or for any professional pursuit is treated as exempt under Section 10(14). There is no monetary limit for exemption in this regard.

  • Children Education/Hostel Allowance: Section 10(14) also provides for exemption in respect of Children Education Allowance of Rs.100 per month per child and Children Hostel Allowance of Rs.300 per month per child, up to a maximum of two children, if such allowances are granted by the employer to the employee.

  • Gift on ceremonial occasion below Rs.5,000: The value of any gift, voucher or token in lieu of gift given by an employer to his employee or family member on  ceremonial occasion, if the value of the same is less than Rs.5,000 during the year, is treated as a tax free perquisite under Rule 3 of the I.T. Rules.

  • Reimbursement of Telephone Expenditure: Similarly, under Rule 3 of the I.T. Rules, any amount of expenditure on telephone (landline or mobile), incurred by the employer on behalf of the employee is also treated as a tax free perk.

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