Its time that we know about the salary structure before the recruiter's can take advantage of our ignorance.We often marvel on the 6 lakh packages some companies offer.....but end up dissapointed when we find that the actual take home salary is diminished and does not match our vague estimates.So learn to calculate your salary structure before you make the important decision of choosing your employer.Learn to manage your taxes and savings....start planning
I know it’s a bit tough to plan your Tax Savings so as to save your Income Tax as much as possible especially for people who’ve just jumped in from the colleges.
Here is some insight to solve this riddle.
I will explain the salary structure first, and then with the help of an example will try to make it clearer.
The Basic components of your Gross salary would be (not talking about CTC here as it includes Gratuity and Medical premium and similar things):
1) Basic salary
2) House Rent allowance (HRA)
3) Reimbursements (like Medical, petrol and others depending on the Company)
4) LTA (Leave Travel Allowance)
5) Provident Fund (that your company deducts directly from Salary)
6) Rest is taken as Adhoc (= Gross - sum of previous 5 components)
Basic salary and adhoc are Taxable whereas other components like HRA, LTA & Reimbursements are Non Taxable provided you claim them through proper means (Rent Receipt and Bills) and PF is part of your Investments (max 1 lac).
HRA
Another important thing that people find hard to understand is claiming HRA, because to claim the HRA amount (as mentioned in the Package of the company), you need to show bills for HRA amount + 10% of Basic salary.
for e.g.
HRA mentioned in the Package is 1,00,000 and Basic salary is 1,50,000, then to claim entire 1,00,000 you need to show rent receipts amounting 1,00,000 + 15,000 (10% of Basic) annually. We can divide this by 12 to get Monthly rental.
Lets take an example now, lets say your Gross is Rs 3,00,000 and the structure is as follows:
Basic Salary = 1,50,000 Rs
HRA = 75,000 Rs
Reimbursements = 36,000 Rs
LTA = 24,000 Rs
PF = 9,600 Rs
Adhoc (rest) = 5,400 Rs
____________________
Gross Total = 3,00,000 Rs
Income Tax slab (for the year 2007-08) is like this:
Range TAX
1 - 1,10,000 (for Male & 1,35,000 for Female) = NIL
1,10,000 - 1,50,000 @ 10% = 4,000
1,50,000 - 2,50,000 @ 20% = 20,000
2,51,000 and above @ 30%
Now to make your Income Tax zero, what we need:
1) Claim complete HRA amount i.e. 75,000 taking into consideration the explanation on HRA above.
2) Submit appropriate Bills for Reimbursements like Medical, Telephone & Others based on your Company structure.
3) Same is applicable for LTA (Travel Bills).
3) Provident Fund: Generally company Pays 800 p/m that amounts to 9,600 annually, it becomes part of your 1 Lac Reimbursements.
Till now we have saved 75,00,000 + 36,000 + 24,000 + 1,10,000 (exempted already) = 2,45,000.
So now to make Tax zero, you need to invest the rest i.e. 3,00,000 - 2,45,000 = 55,000 as your Savings. But Actually only 55,000 – 9,600 = 45,400.
Same Basics you can follow if your package is higher Laughing
If you still have any doubt feel free to discuss on the forum and I’ll be more than happy to help you about with whatever I know.
