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In her pay structure, the fully taxable special allowance is higher than the basic salary, whereas the tax-free allowances account for a very small portion of the total cost to company.
Seth gets Rs.500 a month as reimbursment for telephone expenses, uniform allowance of Rs.18,000 per year, and LTA of Rs.42,200. She should also ask for some basic allowances, such as reimbursement of newspaper bills and meal coupons. Newspaper allowance of Rs.1,000 per month and meal coupons worth Rs.26,000 a year will reduce her annual tax by around Rs.12,000.
However, this may only be a hypothetical calculation because her company is unlikely to agree. “My company is rather inflexible when it comes to the pay structure,” she says.
The HRA calculation poses another problem. HRA exemption is the least of the following three: Rent paid, less 10% of basic; actual HRA received; and 40% of basic salary (50% for metros). In Seth’s case, the first calculation applies. As a result, even though she pays a rent of more than Rs.1.5 lakh a year, she gets the exemption for only Rs.1.02 lakh. Seth and her family are covered by the group health insurance cover from her employer. She should consider buying a health cover separately too. A premium of Rs.25,000 will save her about Rs.7,800 in tax.
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