You pay the biggest amount of money on Income Tax, as compared to other taxes. After all, the other times when you are paying taxes is when you are buying goods and services. On them, tax rates are lower as their price is low too. Coming back to income tax, it is an annual liability on a person that can be reduced. There are a number of articles available on the web for you to help you save tax. However, few of them will talk about one of the easiest ways of doing so. Hence, today we will be talking about tips that will help you optimise CTC to reduce your tax burden.
Tips To Optimise CTC To Save Tax
Tip 1: Balancing Basic Pay
One of the best tips you will ever have to optimise CTC is this. You do not need to have a high basic pay all the time. Always look at the level you are placed. For example, a junior employee needs a high basic pay to ensure he/she can take home as much salary as possible. Since they fall under a low tax slab, the tax burden on them is always going to be low. The best way for them to balance their pay is by opting for more fixed allowances, such as medical reimbursement, food allowance, etc. These are taxed at a lower rate than basic pay, in essence, reducing the tax burden on the employee.
A senior employee also wishes to take home as much salary as possible. However, the benefits available to him/her are more when compared to a junior employee. If you are one such senior employee, you should opt for more benefits to ensure the tax on your basic pay goes down. Other allowances will bring the tax down too, a win-win for you. However, balancing them is a key and using a second opinion in this regard will help you.
Tip 2: Opting For More Perquisites
Suppose you get a company-leased car perquisite. Should you take it? After all, the option of driving your own car to work seems better than using a company car, right? However, using this option will help you keep the tax burden on you down. In order for it to work, this perquisite needs to be a component of your salary.
Tip 3: Opt For Retirement Benefits
The Income Tax Act provides for big savings on retirement schemes such as National Pension Scheme and investment plans from various public and private sector banks. The reason for this is simple – the investment in such plans is for long term. Since you will not get access to a certain bit of your salary for a few years, reducing your tax burden will be a nice idea. This way, not only will you invest in such schemes but ask more people to do so.
Another reason for this is to reduce the currency in circulation. The more currency people have to spend indicates the growing purchasing power of masses. This results in price hike of commodities as demand surges for available products in the market. By reducing the cash in circulation, people’s purchase power comes down, signalling that now less people can buy the available stuff. Hence, manufacturers start selling goods at a lower price or with more added benefits.