The last minute tax saving rush is in full swing. With less than two months left for financial year 2023-24 to get over, many taxpayers must be thinking of ways to minimize their tax outgo and save their salary from getting cut massively.
But seldom are salaried taxpayers aware of the simple yet not so commonly known ways in which you can save tax by paying attention to your salary structure.
Although there are many different parts to a salary, the basic salary is the most crucial since it is used to determine other significant tax-saving parts like the employee provident fund (EPF) and house rent allowance (HRA).
It is advised that the basic salary not exceed 40% of the CTC because it is always taxable. But maintaining a low base pay will cut into other aspects of the pay. All salaried individuals are required to receive certain allowances, such as travel allowance, DA, and HRA, which are exempt at source under the Income Tax Act. Thus, one can minimize their tax liability by negotiating a lower basic salary and higher allowances.
To lower an employee's taxable salary, employers can deduct a number of expenses from their pay, such as company-paid housing, uniform allowances, meal coupons, transportation, telecommunications (such as Wi-Fi and mobile), periodicals, car lease/maintenance, and driver's salary. Tax exemptions apply to some costs, such as internet and phone bills. As such, people can significantly reduce their tax burden by keeping track of their phone and internet expenses. In addition, there are provisions in the Income Tax Act that permit deductions for transportation expenses.?
Therefore, in order to effectively reduce their employees' tax liability, employers can provide a conveyance allowance. Meal allowances in the form of Sudexo Vouchers or other equivalents can be another example of how to lessen their tax burden.?
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Many employers give their staff members the freedom to customize their pay so they can take advantage of tax savings opportunities that best suit their needs. Companies frequently provide employees with flexible benefit plans that let them select from a menu of taxable and tax-free benefits (like lunch coupons or allowances).?
People can customize their pay structures to match their tax preferences and financial objectives thanks to this flexibility.In a similar vein, many employers provide finance options for car leases to all or a subset of their workforce. Having a company-leased car helps save a significant amount of tax compared to buying a car on credit.? ? ?
Last but not the least, it is important to figure out which of the tax regimes are beneficial as per your tax slab.? There are many ways that the new tax system differs from the old one. To start with, there are more slabs with reduced tax rates. Furthermore, if the new tax regime is selected, all significant exemptions and deductions that taxpayers were able to claim under the previous (old) tax regime will no longer be permitted.?
The taxpayer can then select the new tax regime if the benefits of the lower rates in the new regime outweigh the benefits of the exemptions and deductions offered under the previous regime. The taxpayer should compute the income tax liability at the applicable normal tax rates, or at the old tax slab rates, after taking advantage of all applicable income exemptions and deductions in order to determine which tax regime is preferable.
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