Ever heard about tax-saving salary components? Here is how your salary structure, which consists of several components can help reduce your tax burden.

1. Salary Components:
The Ultimate Tax-Saving
Hack

3. If employees focus on structuring their salary components, not only can
they maximize their take-home salaries, but also minimise the income tax
burden.
As an employer, you must help your employees save tax. But helping comes
only if you understand how. Here’s a roundup of tax saving solutions you
should know about.

4. Salary Components That Reduce Tax Burden
There are certain allowances for salaried employees that are exempted.
And when the salary structure is adjusted and restructured to reflect these
allowances, they can significantly reduce the tax burden.
Some of the common allowances are as follows:

5. HRA (House Rent Allowance)
This allowance is for an employee living in rented accommodation. To claim
this deduction, it is essential that it forms a part of the salary.
1. Actual HRA received.
2. Excess rent paid that should be less than 10% of basic salary.
3. 50 % of salary plus dearness allowance in case of a house located in
metro cities (Mumbai, Kolkata, Delhi or Chennai); 40% in case the
house is located in non-metro cities.

6. LTA/LTC (Leave Travel
Allowance/Concession)
LTA is given to employees so that they can meet their travel expenses
incurred for travel — with family — to in India. ‘Family’, here, includes
spouse, children, parents, siblings, who are wholly or partially dependant on
the employee. It can be availed by submitting travel bills/ tickets to the
employer. The exemption on LTC is subject to certain terms and conditions.

7. Car maintenance allowance
If the employer-owned car is used by the employee, and the employer
reimburses driver’s salary, insurance, maintenance and fuel expenses the
taxable value will be Rs 2,700 per month (car with engine capacity up to
1,600 cc) or Rs 3,300 per month (car with engine capacity more than
1,600cc).
If the employee owns the car, an exemption of Rs 2,700 per month or Rs
3,300 per month in respect of the driver salary, maintenance and fuel
expenses borne and reimbursed by the employer.

8. Children’s education allowance
Claiming education allowance is yet another way of saving tax as it is
deducted from the taxable income. An employee gets 100 INR per month or
1200 INR per annum per child (up to a maximum of 2 children) for children’s
education expenses.

9. Hostel expenditure allowance
The Income Tax helps employees meet the hostel expenditure of children
too. The allowance allows a deduction from taxable income – 300 INR per
month or 3600 INR per annum per child (up to a maximum of 2 children).

10. Uniform allowance
This one is granted to meet the purchase and maintenance cost of the
official uniform worn to dispense employee duties. This cost is tax-free.

11. Medical allowance
This financial year has brought a huge relief in terms of medical expenses
for self and dependents. From FY 2019-20 onwards, the standard
deduction has been raised to Rs. 50,000.
Along with these, there are few other facilities that help reduce the tax
burden.

12. Phone bill reimbursement
Here phone bill includes telephone, mobile bill, and broadband connection
which is reimbursed by the employer and is non-taxable.

13. Meal vouchers
The food allowance or meal voucher given to the employee by the employer
is also tax-free. These vouchers are solely for the employee and are not
transferable. The limit of this allowance is 50 INR per meal, calculated on 22
working days a month and 2 meals per day.

14. Gift voucher
A gift (even in the form of token or voucher) given to the employee by the
employer is not taxable. The limit here is 5000 INR annually.
Now that allowances and facilities are out of the way, it’s time to discuss the
retirement component.

15. EPF
Under the EPF Act, both employer and employee have to contribute 12% of
(employee’s) basic salary and dearness allowance to the PF account. The tax
liability here falls under the EEE ( Exempt Exempt Exempt) category
wherein the money invested in EPF, the interest earned, and the money
withdrawn are all exempted from income tax, subject to certain conditions.

16. NPS
Under the NPS (National Pension Scheme), employees can claim a self-
contribution of up to 50000 INR under section 80CCD (1B) as a tax benefit.

17. Employee salary consists of various components that can save tax. Sadly,
most do not take it into account while negotiating salary packages.
Although employees do not dictate the salary structure, employers
nowadays are much receptive and open to building tax-saving
compensations.
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