Income Tax: How can I restructure my salary to claim maximum deductions?

Generally, most of the employers don’t allow their employees to make changes to their monthly salary packages or structure. An employee can save a significant amount on income tax by restructuring the salary. It’s advisable to request the employer for the same.

The option helps employees to restructure their salary by choosing tax-efficient components. Restructuring one's salary may not maximise the take-home amount but it will minimise the tax liability and indirectly help to save more.

By restructuring your salary in a tax-efficient manner, you can ensure that you save more on your hard-earned money and pay less tax. This can be done by availing certain exemptions and deductions, as permissible under various sections of  Income Tax Act.

How to restructure your salary to save income tax?

Telephone and Internet expenses: Employees need to understand that reimbursements for telephone and internet bills are exempt from tax. The reimbursement on mobile phone or broadband bill amount paid or amount mentioned in the salary break up, whichever is lower is tax exempted.

Fuel and Travel expenses: In cases where employees use taxis or cabs for travelling to work or for work-related purposes, the entire amount can be reimbursed with no tax liability. On the other hand, if someone is using their own vehicle or the one provided by the company, the employee can claim fuel expenses and maintenance charges. The exemption limit is Rs 2,700 per month.

Food expenses: Another expense that can be incorporated as a part of the employee's salary package is the food allowance, which is not taxable up to Rs 50 per meal. While this benefit has been there for a long time, it is not widely used.

Standard deduction: Employees need to know that they are entitled to claim a standard deduction of Rs 50,000 from their gross salary. This can be also claimed as an exemption from taxes.

Leave Travel Allowance (LTA): Reimbursement of the employee's travel costs during vacation is also tax-free. It can be claimed twice in a block of four years for travelling on a vacation anywhere in India.

House Rent Allowance (HRA): One of the major expenses that can be added to the employee's salary structure is the house rent allowance. HRA exemption can be claimed for up to 50 per cent of the salary if the employee lives in a metro city and 40 per cent of salary if the place of residence is a non-metro city.  

PF and NPS Contribution:  The deductions which are made on account of Provident Fund (PF) contribution and National Pension Scheme contribution are also available under u/s 80C and u/s 80CCD of the Act respectively. The combined deductions under these two sections are capped at Rs 2 lakh in a financial year.