8 Essential Tax-Saving Strategies for Salary Restructuring

Numerous companies offer their employees the opportunity to modify their Cost to Company (CTC) at the start of the financial year. If your company provides this flexibility, consider optimizing your salary by selecting tax-efficient components. Here are eight exemptions, perks, and deductions you should contemplate incorporating into your CTC:

1. Fuel and Travel Reimbursements

   When using a taxi for work-related travel, the entire expense can be reimbursed without incurring any tax liability. If you use a self-owned or company-provided vehicle for official purposes, you can claim reimbursement for fuel and maintenance costs. If the vehicle serves personal purposes as well, the perk incurs taxable values of Rs 2,700 for cars with engines under 1.6 liters and Rs 3,300 for larger vehicles.

2. Driver’s Salary

   Senior executives often have the option to hire a driver. The driver’s salary carries a nominal taxable value of Rs 900 per month but can lead to significant tax savings.

3. Leave Travel Assistance (LTA)

   Reimbursement of travel expenses for your family during vacations is tax-free if claimed twice in a four-year block. While LTA faced restrictions due to the COVID-19 pandemic, it’s now a significant tax-saving option. Include LTA in your CTC at the beginning of the year, as you cannot opt for it later or claim it while filing your Income Tax Return (ITR).

4. Movable Assets

   Companies that provide movable assets to their employees can offer substantial savings. Under Section 17(2), gadgets and appliances purchased in the company’s name for personal use by the employee are taxed at only 10% of the value. Computers are entirely tax-free. This became especially relevant during the work-from-home phase after the COVID outbreak in 2020.

5. Internet and Phone Bills

   Reimbursements for internet and phone bills, which surged during the pandemic when many employees worked from home, are tax-free for the recipient. However, you must submit actual bills to claim this benefit.

6. Newspapers and Periodicals

   Similarly, reimbursements for newspaper and periodical subscriptions are tax-free if substantiated by actual bills.

7. Meal Coupons

   This perk allows tax-free benefits of up to Rs 50 per meal, equivalent to approximately Rs 2,200 per month. While this perk has been available for some time, the introduction of digital wallets has made it more accessible for employees, eliminating the need to retain physical meal receipts. Companies have also found compliance more straightforward due to digital wallets.

8. NPS Contribution (National Pension System)

   Often overlooked, the NPS contribution is a valuable benefit that can significantly reduce your tax liability while building a retirement corpus. Up to 10% of the basic pay placed into the NPS is tax-free under Section 80CCD(2). Despite the advantages of the NPS over mutual funds in terms of costs and returns compared to other retirement saving options like Provident Fund, PPF, and insurance plans, only a small percentage of eligible employees opt for it. Be aware that selecting NPS may reduce your take-home pay, as the amount is invested for your future retirement security.

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