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How to save income tax by rejigging your salary
June, 26th 2018

Effective use of salary components, such as leave travel allowance (LTA), house rent allowance (HRA) and reimbursement can help you save tax at the end of the year

Pune-based Divya Choudhary, 24, who works as a software engineer in a local startup focused on providing tech solutions to agriculturists, has been diligent about money since the time she got her pocket money. When she turned 19, she allocated her pocket money to different spends such as clothes, eating out and movies, etc. Her friends considered her an expert at it. But when Choudhary took up a job, she faced a new challenge—how to legitimately save tax and boost take-home pay?

A higher inflow would give more room for spends, so it became important for her to identify which components of her salary allowed her to save tax. If like Choudhary, you too are wondering how to save tax on your salary, here is what you should know:

Food bills

A part of your salary can be paid to you in the form of food coupons. Food coupons are exempt up to ? 50 a day. You can get a part of your salary in the form of these coupons at ? 50 a day for 22 working days in a month for up to two meals. This way you can get ? 2,200 a month as food coupons, which will be fully tax-free. Such an amount will save ? 7,920 annually in taxes, if you are in the 30% income tax bracket.

Vacation spends

Money spent on tickets for vacations can be claimed as leave travel allowance (LTA). While there is no monetary ceiling on how much LTA can be claimed, only the fare cost for travel to your destination via air or rail can be claimed. The airfare must not exceed the cost of the ticket on the national carrier for the same route. Besides, this claim is allowed twice in four years. For example, if you are planning a trip to Kerala with your spouse, ticket for two can cost ? 18,000. If you are in the 30% tax slab, you can save ? 6,000 towards taxes with this claim. This claim is only for travel within India. Besides, it covers only the fares and does not include boarding, lodging, hotel stay or cabs used for commute to railway station or airport or during the trip.

Reimbursements

Your employer can reimburse expenses incurred wholly for official purposes. For example, your employer may agree to reimburse your phone bills or cab expenses incurred while doing office work. Ask your employer to convert some part of your salary into reimbursements. A monthly telephone bill reimbursement of ? 2,000 results in a tax saving of ? 8,000 annually for those in the 30% bracket.

Paying rent vs home ownership

A large component of your salary is likely to be the house rent allowance (HRA) given by employers to cover the rent paid by you. You can work with your employer to fix HRA, so you are able to save as much tax as possible on the rent outgo. Remember, it is essential to actually make rent payments, keep receipts and also submit an agreement made with the landlord. Taxpayers are unsure whether it is tax beneficial to invest in a property and claim tax benefits on interest paid on loan, instead of going the HRA route.

Buy a house if you must, however, the interest is steep and tax benefit on interest is restricted to tax saved on ? 2 lakh annually.

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