Tax Saving Salary Components

Objective

The tax saving components, if opted will help in saving tax deduction in salary.

Process
  • The components provided here can be opted by the employee and CTC will be restructured accordingly.
  • These components are allowed for exemption of tax to the limits specified by the law and opting for the same will help in tax saving.
  • These options can be exercised during joining, month of April every year or on CTC revision due to appraisal process.
  • Once opted, the removal is possible only during the beginning of the next financial year end.

I. Leave Travel Assistance

  • Actual journey is mandatory to claim.
  • LTA can be availed twice in a block of four years as declared by the government.
  • LTA is fully exempt from income tax, provided it satisfies certain conditions. Here are the conditions.
    • The maximum amount allocated under this salary component head is one basic salary.
    • The employees have to avail minimum 3 days leave to get this benefit.
    • The employee has to actually spend this amount on transportation. The spending can be for self and family members, but the employee has to be one of the travelers. Here, family means spouse and children(dependent). Dependent parents are also included.
Proof of travel
  • Proof of travel needs to be preserved and presented to claim this exemption.
  • The original tickets are considered valid proof for Air, Road & rail fare claim.
  • For Air Fare claim, mandatory to provide the boarding pass & ticket.
  • For Rail Fare claim , Counter ticket, e ticket or i-ticket can be provided in original.
  • For Road Travel, the rental vehicle operator provided original bill is considered.
Process for e-tickets
  • All tickets booked online in form of e-ticket needs to be supported with a print of the booked history post the date of travel( to be taken within 15 days of date of travel , as the data on delivered tickets in booked history page might get deleted automatically post 15 days) for validation of travel.
  • This step is mandatory for verification.
  • For e-ticket : In case ticket reservation is done through travel agents, they should be briefed about this requirement of “booked history” in advance. 
  • The LTA claims might be denied , if the basic requirements as stated in the policy are not fulfilled.
  • The amount has to be spent on transportation – either air, road or rail. Any amount spent for lodging and boarding is not considered. Thus, food related expenses and hotel expenses are not exempt from income tax. Other travel expenses like taxi / cab fare, auto fare, etc. cannot be claimed as exempt.
  • The travel has to be within India – foreign travel is not considered.
  • The amount exempt would be the amount required for travel to your destination by the shortest route, depending on the mode of your travel.
  • If the place of journey and destination are not connected by any public transport system or rail, then the amount equivalent to the air-conditioned first class rail fare shall be provided, for the distance of the journey by the shortest route, as if the journey had been performed by rail.
  •  If you travel by air, the maximum amount that can be claimed as exempt is the economy class air fare to your destination by the shortest route.
  • If you travel by rail , the maximum amount that can be claimed as exempt is the air conditioned first class (AC I Class) rail fare to your destination by the shortest route.
  • If travel by road, the maximum amount claimed as exempt is the fare to your destination by the shortest route. This shall not include expenses towards food or stay.
LTA claim in Block of 4 years
  • The LTA tax exemption can be claimed only twice in a block of 4 years.
  • These blocks of 4 years are predefined by the government.
  • The current block is 2022 – 2025.
  • Please note that these years are calendar years, and not financial years.

e.g.If you claim LTA exemption in 2022, then, you can claim it only once more till 2025. Thus, if you claim it again in 2023, you cannot claim it before 2026, as you would have already claimed it twice in the block 2022– 2025.

However, if you do not claim LTA exemption in 2022 and 2023, you can claim it for both 2024 and 2025, and also for 2026 and 2027, as 2026 and 2027 fall under the next block of 4 years: 2026 – 2029. Thus, it is possible to claim LTA exemption for 4 years in a row!

LTA claim by working spouse
  • A question that is very commonly asked is: If both husband and wife are eligible for LTA, can both of them claim it?
  • Yes, they can very much claim LTA individually. The rules of LTA apply individually to each, which means that each spouse can claim LTA twice in a block of four years.
  • Thus, a family can claim LTA exemption four times in a block of four years if both spouses are eligible for LTA.
  • The only restriction is that both spouses cannot claim LTA exemption for the same journey.
Tax benefit
  • LTA can be opted while declaring investments at the beginning of each financial year in online investment declaration form.
  • The LTA for tax relief can be claimed online through the investment submission form with the necessary Proofs in the month of Feb-March for the respective financial year.
  • The tax relief will be provided on the amount of bills submitted subject to the ceiling. Hence, if the bill amount is lower than the limit allowed, the tax exemption shall be provided only on the bill amount, the rest amount become taxable income.
  • In case the LTA is not claimed till financial year closing , the LTA amount will be disbursed after tax deduction in March salary. 

2. Children Education Assistance

  •   Children Education Assistance (CEA) of Rs. 100 per month per child up to a maximum of two children can be claimed for tax exemption.
  • This scheme can be availed by employees upto a maximum of Two Children.
  • This is applicable for School going children only (nursery to 12th Std).
  • The Scheme has no nexus with the performance of the children in the class.
  • The annual ceiling for reimbursement of children education allowance is fixed at Rs.1200/ per child.
  • Declaration of opting for CEA shall be given online during the investment declaration in the month of April in ESS
  • Reimbursement of the children education allowance would be made on production of original receipts of fees payment, self certified by the employee during financial year closing.
  • If the receipt is not provided, the amount declared under this head shall be taxable.

3. National Pension Scheme

  • National Pension Scheme (NPS) benefit is provided for employees in Grade M1 & Above.
  • NPS is a contribution scheme through which both the employer as well as the employee can build employees’ pension wealth.
  • In this Corporate NPS scheme, contribution to employee’s Pension Fund is done through employer as stated u/s 80CCD (2) based on the declaration by employee.
  • The employee can declare an amount in multiples of Rs.500 to be deducted every month from his/her salary, maximum upto 10% of basic. Such declaration will lead to same amount getting reduced from net salary every month due to contribution towards NPS account.
  • The employee declared NPS contribution amount shall be deposited in employee NPS account, resulting in reduction of take home salary by equivalent amount. The money deposited in NPS is invested in a variety of securities and investment avenues including equity market.
  • The contribution shall be done in the Tier I pension account of NPS.
  • Tier-I account does not allow you to make any withdrawals before 60 years.
  • If you invest less than Rs. 6,000 in each year, then a penalty charge of Rs. 100 is levied on the account.
  • As the returns on the invested amount are directly driven by the market performance, there is no assurance provided by company of any fixed earning.
  • The investment in NPS can be made u/s  80CCD(1), 80CCD(2) and 80CCD(1B).
  • 80CCD(1) provides tax benefit on employee contribution to NPS which is 10% of Basic, max upto 1.5 Lakh limit, included within section 80C.
  • Additional contribution of Rs. 50,000/- is allowed u/s 80CCD(1B).
Process to Register
  • To open new NPS Account, team member has to register by filling the form provided (Common Subscriber Registration form) alongwith KYC documents(PAN Card, Adhaar) & coloured photograph.
  • The contribution amount should be Minimum of Rs. 500 per month. Any amount opted for monthly deduction should be multiples of 500, e.g. 1000, 8500, 13500, 15000 not exceeding more than 10% of monthly Basic.
  • The opted NPS contribution will be deposited in your NPS account, as per the Permanent Retirement Account Number (PRAN) provided, on monthly basis and the Net take home salary would reduce to that extent.  
  • The CRA for our NPS processing is K Fintech. Those having the CRA as NSDL will be migrating their NPS account to KFintech (Inter CRA subscriber shifting form attached) CRA for convenience of processing the contributions.
Process of exit from scheme (as per stated NPS guidelines by Government)
  • At the end of the tenure (retirement), up to 60% of the corpus can be withdrawn from NPS. The remaining 40% will be invested in an annuity provided by insurance companies.
  • If you want to withdraw before 60 years of age, you would be required to invest at least 80% of the pension wealth to purchase a life annuity from any IRDA–regulated life insurance company. The remaining 20% of the pension wealth may be withdrawn as lump sum.
  • Any payment from NPS to an assesse because of closure or his opting out of the pension scheme is exempt to the extent of 60%.
  • Any partial withdrawal from NPS shall be exempt to the extent of 25% of amount of contributions made by the employee.
  • Pension will be given to the subscriber on a monthly basis based on annuity scheme chosen at the time of retirement.
  • Withdrawal amount will be sent directly to the subscriber’s bank account.
  • The pension amount received is taxable.
  • In case of death of a subscriber, nominee will receive 100% of fund value which will be exempt from tax.
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