Feb 192015
 

Restructure your compensation with perquisites and other long terms benefits

In our earlier blogs we have already discuss in detail about structuring your compensation plan. Here we are providing you few more tips which will help you in restructuring your salary so as to minimize your tax bill:-

Make use of perquisites

One smart way to avoid tax is to opt for a company leased car instead of buying one yourself. Instead of you paying the EMI out of your post-tax income, your employer pays the EMI and includes it in your CTC. This cuts the tax significantly because you are taxed only for the perk value of the car, which is between Rs 1,800 a month (for cars of up to 1600 cc) and Rs 2,400 a month (for cars bigger than 1600 cc).

If your employer is willing to fund a professional course, the taxable value of such a perk will only be at 10% of the course fee. This means, for a benefit of, say Rs 70,000, you will be taxed for only Rs 7,000.

Check if your employer can provide you a laptop or tablet for professional as well as personal use. You will have to pay tax on the perk value of the gadget, which is only 10% of the price of the gadget.

Other tax-efficient perks include food coupons, which can be used at various outlets and departmental stores to buy food items. Most of big grocery chains, fast food outlets and departmental stores accept these coupons. One can take nearly Rs 30,000 worth of meal coupons and gift coupons of up to Rs 5,000 in a year. This has the potential to reduce the tax by almost Rs 10,000 for someone in the 30% tax slab.

Opt for more long-term benefits

Tax can be reduced further if you opt for certain long-term benefits. Every month, 12% of your basic pay flows into your PF account with a matching contribution by your employer. While your contribution fetches you tax benefits under Section 80C, you can opt for investments that give you additional tax benefits over and above the Rs 1.5 lakh deduction under Section 80C.

Under Section 80CCD(2), up to 10% of your basic salary is fully deductible if invested in the national Pension System (NPS). Additionally, the employer’s contribution, which is up to 10% of the basic, is deductible under Section 80CCE over and above the Rs 1.5 lakh deduction limit for Sections 80C, 80CCC and 80CCD. In the highest 30% tax bracket, it will enhance your increment by 3% of your basic salary.

Become the consultant

Another way to ensure a higher take-home salary and lower tax is by becoming a consultant. Consultants can claim deduction for work-related expenses. As a consultant, your income is taxed under the head ‘income from business or profession’ and accordingly you can claim deduction of all expenses incurred, including telephone bills, travel, entertainment, stationery and depreciation of assets. This can go a long way in reducing the taxable income for the individual.

However, there are several hassles you need to go through as a consultant.

You will have to maintain proper books of accounts and get an audit report in case the gross receipts exceed Rs 15 lakh in a year.

A consultant is also liable to pay service tax if his income exceeds Rs 10 lakh.

It is wrong to assume that the tax burden will lessen if one becomes a consultant. It will depends on how much expenditure one has incurred against receipts.

However, you have to forego some benefits you would have otherwise enjoyed as a salaried individual. For instance, HRA, LTA and medical allowance are some key benefits that consultants are not eligible for.

So we advice taxpayers to think about the long-term benefits of continuing as an employee rather than becoming fixated with the short-term tax benefits of a consultant. They stand to reap certain incidental benefits that help build long-term savings in the form of Provident Fund, as well as certain terminal benefits like gratuity and superannuation.

We are of strong belief that above article would help you in preparing a tax efficient salary structure and will help you to increase your take home salary.

Feb 192015
 

Agriculture Income To Employee

In previous document we have discuss few methods of planning your salary structure in the manner that suits tax man and in the same time minimise your tax bill. Even after availing all those benefits requirement is observed to avail some more avenues of income which are tax free and can be earned with minimal efforts. Hence we are looking forward for agriculture income, which is a need of human life.

What practically few employees doing is; while working in office of employment they give their lands to cultivate and grow to others which is managed by their family. In this way they have a additional source of income and at the same time they need not to pay additional tax. The provision related to agriculture income explained in following para.

Meaning of “Agriculture Income” : Agriculture Income means-

  1. any rent or revenue derived from the land which is situated in India and is used for agriculture purposes sec.2(1A)
  2. any income derived from the land by agricultural operation including processing of the agriculture produce, raised or received as rent –in-kind so as to render fit for the market, or sale of such produce[sec.2(1A)
  3. income attribute to a farm house subject to the conditions that on the building is situated on or in the immediate vicinity of the land and is used as a dwelling house, store house or other out building and the land is assessed to land revenue or a local rate or, alternatively ,the building is situated on or in the vicinity of land which (though not assessed to land revenue or local rate) is situated outside in urban areas, i.e., any area which comprised within the jurisdiction of a municipality or cantonment board having population of 10,000 or more in any area within such notified distance upto 8 km from the local limits of such municipality or cantonment board.

 Benefit of having Agriculture Income

  • SECTION 10(1) exempts agriculture income from tax.
  • The reason of exemption of agricultural income from central taxation is that the constitution gives exclusive power to makes laws with respect to taxes on agricultural income to the state Legislature.
  • Agricultural income is taken into consideration to determine tax on non-agricultural income in exceptional cases only.
  • With effect from the assessment year 2009-10, any income derived from saplings seedlings grown in a nursery shall be deemed to be an agricultural income.

Essentials condition to prove income to be agriculture income:-

– There must have a land.
– Rent or revenue should be derived from land.
– The land is one which is situated in India.
– The land is used for agricultural purposes.

How shall an employee take benefit of this provision:-

To availing this exemption, an employee shall disclose his agriculture income in the exempted income listing of return. At self assessment level no other procedural requirement needs to be met. However, in case of scrutiny employee must prove correctness of his claim to Income Tax Authority (ITA).

Further to avail this exemption, employees needs to show a relation between his income and agriculture land situated in India. Employees need not to be owner of land. The only requirement is a relation between income and agriculture land. This relation may be direct or indirect.

It shall be noted that agriculture income is added to salary income only for determining tax rates on salary income. To that extent it can be said agriculture income is indirectly taxed in terms of higher tax rates of normal salary income.

However in some cases transactions are coloured as agriculture income. This is not correct. If you get catch my ITA, it will raised huge penal and prosecution action against such person.

So after discussion the scope of taxation of agriculture income it may be concluded that even if you are not owner of land still you can avail the benefit of this exemption and minimise your tax bill. In upcoming document we will provide you practical method of availing this exemption and few other important aspects related to agriculture income.