Know the Components of Your CTC
For an employee, CTC is the amount which company projects as a salary, but is never what is actually received by the employee in cash. CTC (the expense of the company) need not necessarily be salary for the employee.
Employees get the Net Salary as their take home salary, which they most often forget to chase. Many people do not understand the basic difference between CTC, Gross salary and Net salary.
The difference between the CTC, gross salary and net salary is - CTC is the total cost that an employee is incurring in the company, Gross Salary is the one which you see every month. But this is before any deduction. Net Salary is what an employee get to his/her hand after deductions (this is the take home salary).
The way your compensation is structured can have a vast impact on the taxes that you pay on your salary, thereby impacting your net salary payment. What is it that you should look for in a CTC to maximize your take home salary?
Let us look at certain salary components that enjoy tax exemptions and can help you get the most out of your earnings:
House rent allowance: If you are living in a rented accommodation and are paying rent in excess of 10% of your salary, having a house rent allowance as a part of your CTC can help you save a significant amount of tax. You should submit the rent receipts / rent agreement to your employer to reduce the taxes deducted on your monthly salary.
Telephone reimbursements: While a fixed monthly telephone allowance is fully taxable, if the employer reimburses telephone expenses incurred by you for both, official as well as personal purposes, such reimbursement will not be chargeable to tax.
Medical reimbursements: Reimbursement of medical expenses up to R15,000 annually in respect of medical expenses incurred for yourself, your spouse, children and dependent parents and siblings is exempt from tax. However, if the employer pays you a fixed monthly medical allowance, no such exemption will be available.
Leave travel allowance: An allowance received in respect of travel expenses for two holiday trips in a block of four years to any place in India for yourself, spouse, children and dependent parents and siblings is exempt from tax, subject to certain conditions.
In addition to salary, allowances and reimbursements, employers also provide employees with certain benefits in kind which are valued as per the income tax rules and taxed as perquisites. Having certain benefits-in-kind as a part of your compensation package can also help you minimize your taxes. Let's examine a few of such tax efficient perquisites:
Company provided car: Under the Income tax rules, the taxable value of a chauffeur driven car provided by the employer for partly for official and partly for personal use, with the maintenance and fuel costs being borne by the employer, is a maximum sum of Rs. 3,300 per month even though the actual expenses including the driver's salary and the lease rent paid by the employer may add up to much larger amount.
Club membership: A club membership is a much sought after perk today. No tax is payable by you on the initial fee paid by your employer for a corporate membership of a club that allows you and your family to enjoy the facility.
Contribution to superannuation fund: Contributions made by your employer for you to an approved superannuation fund are not taxable if the contributions do not exceed Rs. 1 Lakh annually.
Health insurance premiums: Health insurance premiums paid by your employer to keep in force an insurance plan on your health is tax exempt.
Free meals: Free food, non-alcoholic beverages, tea and snacks provided by the employer in the office during working hours is not taxable in your hands as a perquisite.
Meal coupons: Meal vouchers not exceeding R50 per meal, provided by the employer are not chargeable to tax. Many companies offer Sudexo meal vouchers or similar ones to the employees to save on the tax.
So, before you sign your contract with the new employer, do consider negotiating your salary structure with the HR basis the above salary components to save taxes and maximize your net take-home pay.
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