Jigar M. Patel
International Tax Attorney
The Income-tax Act provides for a number of allowances and perquisites which have been notified as tax free. If a Salary Pay Package can be structured in a manner that the same can include such tax free allowances and perquisites, this would ensure that a Salaried can get maximum take-home pay per month with the minimum deduction of tax.
An Illustrated Zero-Tax Pay Package of up to Rs.8,85,000
As a salaried taxpayer you can conveniently structure your annual pay package of up to Rs.8,85,000 on a Zero Tax Basis.
This would ofcourse depend on the kind of allowances and perquisites you receive keeping in view the facts and circumstances of your case. However, here is an illustrated pay package under which the allocation of your salary, allowances and perquisites could be structured as under:
- Basic and D.A. of Rs.7,23,000.
- Conveyance Allowance of Rs.5,000 per month (annually Rs.60,000) for discharging your official duties, can be claimed as exempt under Section 10(14).
- Uniform Allowance of an annual amount of Rs.36,000 towards purchase and Rs.800 per month (annual Rs.9,600) to meet the expenses for washing and maintenance of uniform, can be claimed as exempt under Section 10(14).
- On the basis of your two children being educated at school or college, Children’s Education Allowance for each child at Rs.100 per month can be claimed as exempt under Section 10(14) at Rs.2,400 annually.
- Food Coupons or Paid Vouchers provided by your employer being treated as exempt perks on the basis of Rs.50 per meal and considering 2 meals per day, such coupons for a value of Rs.2,500 per month (annually Rs.30,000), can be planned under the package and claimed exempt.
- Reimbursement of annual telephone expenditure of Rs.24,000 can also be claimed as an exempt perquisite.
In the above case, the various allowances and perquisites to the extent of Rs.1,62,000 as shown hereinabove would be exempt, leaving the taxable salary at Rs.7,23,000 out of the total pay package of Rs.8,85,000.
You can plan appropriate investments or allocations by way of contribution to PF or PPF, payment of Life Insurance Premium etc. upto Rs.1,50,000 which are eligible for deduction under Section 80C, Rs.50,000 of Standard Deduction, up to Rs.25,000 for Medical Insurance / Check-up, thereby reducing your Total Income to Rs.4,98,000. Considering the rebate of up to Rs.12,500, available under Sec. 87A for income under Rs.5,00,000, you can thus effectively enjoy a ‘Zero Tax Status’ in respect of your total pay package of Rs.8,85,000 for FY 2023-24.
You can even Top-Up More!
Depending on the facts of your case, you can even top-up some more exempt allowances, such as Leave Travel Concesion (LTC). In case you are paying house rent, you can claim exemption under Section 10(13A) in respect of House Rent Allowance (HRA). If you have invested in a house of your own, you would be entitled to claim interest on housing loan of upto Rs.2 lakhs as deduction under Section 24.
ILLUSTRATED TAX FREE ANNUAL PAY PACKAGE OF Rs.8,85,000
Classification Taxable Exempt
Income Income
Rs. Rs.
- Basic & DA 7,23,000
- Conveyance Allowance — 60,000
- Uniform Allowance — 45,600
- Children’s Education Allowance — 2,400
- Food Coupons — 30,000
- Reimbursement of Telephone Expenses — 24,000
7,23,000 1,62,000
Less: Standard Deduction u/s. 16(1) 50,000
Less: Deduction u/s. 80C 1,50,000
Less: Medical insurance/check-up
u/s. 80D 25,000
TOTAL INCOME 4,98,000
Tax Payable thereon 12,400
Tax Rebate u/s. 87A 12,400
Net Tax Payable Zero
