Optimise your income tax benefits: Rewrite your salary structure for effective tax saving and easier tax filing

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As salaried employees prepare themselves for the upcoming financial year, one underutilised but strong method of increasing savings is salary restructuring. With the appropriate mix of tax-free allowances and reimbursements, your take-home pay can be enhanced substantially while also streamlining income tax return filing. Regardless of whether you choose the old or new tax regime, salary component restructuring can deliver tangible gains.

Why salary structure matters for tax savings

A salary is not merely your credited amount per month. It's made up of different elements—basic salary, house rent allowance (HRA), special allowances, bonuses, and reimbursements. Some elements are exempted under the Income Tax Act, either in whole or in part. If you do not make the most of these, you may unnecessarily pay more tax.

For example, HRA, Leave Travel Allowance (LTA), food coupons, mobile reimbursement, and even professional development allowances are exempted from tax up to certain thresholds. Complementing your salary to take advantage of these elements helps you decrease your taxable income lawfully.

Select the correct tax regime first

Before revising your salary structure, it’s important to decide whether you’ll be filing under the old or new tax regime. The old regime offers a host of exemptions and deductions, like HRA, LTA, standard deduction, and Section 80C investments. The new regime, on the other hand, has lower tax slabs but removes most exemptions and deductions.

Workers intending to remain under the old regime stand to gain the most from a maximized salary structure. But even in the new regime, choosing components that are considered tax-free reimbursements can minimize gross income.

Tax-efficient salary components to include

Following are some salary components that can be structured for tax efficiency:

• House Rent Allowance (HRA): Tax-exempt under Section 10(13A) if you are paying rent and residing in a rented house. Amount of exemption varies according to your resident city, income, and paid rent.

• Leave Travel Allowance (LTA): Exempted for domestic travel expenses paid for self and family for two times within a four-year block.

• Meal and gift vouchers: Meal vouchers up to ₹50 per meal per working day and annual gifts up to ₹5,000 are not taxable.

• Mobile, internet, and fuel reimbursements: If for work, these are tax-free if documented correctly.

• Education and hostel allowance: ₹100 per month per child (upto two children) and ₹300 per month for hostel charges are exempt.

• Books/journals allowance or professional development: Tax-free if applicable to your professional job role.

How to restructure your salary

Ask your HR or payroll department to restructure your salary at the beginning of the financial year, if possible. Give them a list of desired allowances and propose adjustments from the current CTC (cost-to-company). Some firms provide flexible salary elements or "cafeteria models" and allow you to pick tax-saving benefits.

Make sure to keep all documents required—bills, receipts, and declarations—to support your claims while filing or in the event of a tax audit.

Simplified tax filing with proper documentation

A properly structured salary not only saves you tax but also simplifies your income to report. When your pay slips and Form 16 are neatly demarcated with HRA, LTA, and reimbursements separately disclosed, you minimize the risk of filing mistakes or getting income tax notices.

Structuring your salary to maximise your take-home pay is a minimal-effort, maximum-return strategy that far too many professionals overlook. With minimal paperwork and a little initiative on your payroll, you can increase your year-end savings and make tax-filing day less stressful. With the financial year now under way, now is the time to take action—talk to your employer, strategize your regime selection, and claim as much tax relief as you can.