Over the next few weeks, companies across India will start collecting investment proof from employees to calculate the TDS on their salaries. This statutory obligation has become an annual ritual over time, and most companies treat it as a compliance cost. However, a company with a progressive outlook can easily turn this exercise into a practice to help their employees and boost employee loyalty.

Taxspanner analysed the income and tax details of salaried taxpayers and found that a vast majority pay a very high tax. This is either because they are unaware of tax rules, or their salary structure is not very tax friendly. As a result, they are not able to optimise their tax outgo and end up paying more than they should.

The perils of self-medicating
Our analysis showed that a lot of taxpayers manage their tax affairs themselves, without seeking help from an expert. Just as self-medicating is not advisable when we fall ill, the do-it-yourself approach can prove to be very costly for salaried people. We noticed that they missed out on several deductions and exemptions that a professional tax advisor could have saved for them.

Taxpayers tend to underestimate the real cost of paying too much tax. Even a modest saving of Rs 3,000 a month, if invested for retirement, can grow to a massive Rs 10.3 lakh in 10 years. In 20 years, it would become Rs 50.9 lakh and in 30 years it would reach Rs 1.95 crore. So, poor tax planning could be robbing you of a comfortable retirement. The bigger problem is that a person who does not fully understand the tax laws or hasn’t updated his knowledge with the new regulations can make errors ..

What companies can do
Companies are forever trying to attract talent by offering the best pay packages. Indeed, apart from job profile and growth prospects, the financial part of the package is critical for employees. This is why some people even switch jobs for a marginal hike. However, many companies believe they can do little beyond offering a high CTC package. This is a misconception. Instead of spending crores on trying to acquire and retain talent, employers can redesign their pay packages so that the tax liability of the individual is reduced to the minimum. They can also arrange for tax planning sessions for employees where professionals counsel them on the best ways to reduce their tax liability. Some of these measures cost virtually nothing while others add barely a fraction to the total employee cost. But they can reduce the enormous waste of hard earned money that is deducted as TDS from the salaries of their employees every month.

Take for example, the inclusion of New Pension Scheme (NPS) benefit in the CTC structure. Up to 10% of the basic salary of an individual is fully tax deductible if put in the NPS under Section 80CCD(2). This means 10% of the basic salary becomes tax free if the company offers this benefit to its employees. This way, someone in the 30% tax bracket can effectively save tax equal to 3% of his basic salary, which is no small feat. For the company, this step requires minimal additional expense because the NPS Trust manages the entire back-end and record keeping.

Some companies don’t want to tinker with the pay packages or get involved in activities that are not part of their core operations. This is a blinkered view. Instead of letting them suffer a high TDS, companies should step in and help their employees optimise their tax.