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Design a Tax Friendly CTC for Employees

Design a Tax Friendly CTC for Employees

Creating a tax friendly CTC for employees can be challenging for the HR personnel. An ideal compensation structure has a pay structure from which the employee can save money and have tax benefits under section 80d. Such CTC can also be beneficial for the employer due to the variable components.

Broadly, the CTC can be categorized into - basic, allowances, and perquisites. For every component, the tax benefit and the employees tax burden will vary.

  • Basic Salary

    The basic salary is completely assessable to the employees. It is the fixed and base amount an employee gets before the extras are added or deducted. The basic salary component doesn’t include any bonuses or allowances. Many allowances such as HRA and PF are connected and proportional to basic salary.
  • Allowance

    HR executives add allowances to CTC as a step to save tax for the employees. The Income Tax Act has prescribed certain allowances for all the salaried individuals that have tax exemption 80D at source. Such allowances may include HRA, medical reimbursement, transport allowance, LTA/LTC, uniform allowance/corporate attire, children education allowance, children hostel allowance, professional pursuit/research allowance and performance bonus (annual) as per the industry.
  • Perks

    Tax benefits under section 80d are applicable for few perks (extra advantages or facilities offered by an employer to an employee), that if added as a salary component, it may result in tax savings. Major ones are preventive health check-ups, sports and food vouchers. Preventive health check-ups help you save tax and additionally save life and save money.

How Health Care Initiatives Are Mutually Advantageous

Individuals can save tax on preventive health check-up while for a company, the health check-up works as an important and engaging perk for its employees. Many companies are choosing to add corporate wellness programs and preventive health check-ups in the CTC as an effective medium of connecting with the employees. Such initiatives create a strong bond between the organization and its employees which further boosts productivity and healthy work culture.

When tax payers think about deductions under section 80D, they can have tax benefits for the amounts paid for health insurance and preventive health checkups they take up for self, family or parents. Through a corporate wellness plan included in the CTC, an employee can save tax on preventive health check-up

It is important to check the employees’ health & absenteeism to boost productivity and don’t let taxes bite into their earnings. Fill the query form to know more about how a corporate health check-up can be an easy and effective tax saving idea!

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