The variable pay comprises the allowances and reimbursements that come to you as cash. Learn how to make the best use of them by rejigging their proportions in your compensation package.
Offered only to senior-level employees, this can bring down the tax liability significantly. This is especially helpful when rentals are very high. The taxable value of an unfurnished rent-free house is calculated at 15% of the gross income.
Bonus and other such incentives are taxed as part of the salary. But the payout is only once a year. So don’t factor in a bonus into your expense planning till you have actually got it. Instead of an annual lump-sum payment, negotiate for a quarterly payout of bonus.
The provision of car, driver and maintenance by the company attracts FBT. If you have your own vehicle, opt for a car maintenance and fuel allowance instead, as this enhances your take-home package. Avoid taking driver’s salary in cash because it will raise your tax liability.
Newspapers & periodicals
Reimbursements of bills of newspaper and periodicals do not attract FBT. But the claims should be kept within reasonable limits. It is a good way to reduce tax. Another smart option is the education allowance, which is also exempt from FBT. But it is only for actual expenses and one should include it only if one has school-going kids.
Employee stock options
This is a retention tool disguised as a long-term perk. The company gives an employee the option to purchase shares at a pre-determined price in the future if he remains with the company. This price is usually at a discount to the market price of the shares. Esops are covered under FBT. If the shares are held for over a year, there is no capital gains tax on the profit made.
A facility that is usually extended to the senior management only, it falls in the highest FBT bracket. As much as 50% of the value of the membership is taxable, so the effective tax rate comes to 15.2%. Avoid if you are not the clubbing types. Instead go for a travelling and tour allowance that attracts FBT on 5-20% of its value. The FBT on Rs 10,000 worth of club benefit will be Rs 1,520, while on travelling and tour allowance it could be as low as Rs 152.
Tax-free up to Rs 15,000 a year. If you can’t produce bills for the amount, the sum gets added to your income for the year and is taxed at the applicable rate.