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Employers can help to Save Tax

Save Tax Online



By providing expert guidance and a tax friendly salary structure, your company can help you optimise your tax

Over the next few weeks, companies across India will start collecting investment proof from employees to calculate the TDS on their salaries. This statutory obligation has become an annual ritual over time, and most companies treat it as a compliance cost. However, a company with a progressive outlook can easily turn this exercise into a practice to help their employees and boost employee loyalty.

The income and tax details of salaried taxpayers and found that a vast majority pay a very high tax. This is either because they are unaware of tax rules, or their salary structure is not very tax friendly. As a result, they are not able to optimise their tax outgo and end up paying more than they should.


The perils of self-medicating

Our analysis showed that a lot of taxpayers manage their tax affairs themselves, without seeking help from an expert. Just as self-medicating is not advisable when we fall ill, the do-it-yourself approach can prove to be very costly for salaried people. We noticed that they missed out on several deductions and exemptions that a professional tax advisor could have saved for them.


Tax payers tend to underestimate the real cost of paying too much tax. Even a modest saving of `3,000 a month, if invested for retirement, can grow to a massive `10.3 lakh in 10 years. In 20 years, it would become `50.9 lakh and in 30 years it would reach `1.95 crore. So, poor tax planning could be robbing you of a comfortable retirement. The bigger problem is that a person who does not fully understand the tax laws or hasn't updated his knowledge with the new regulations can make errors in his returns. Some errors can even lead to a tax notice, penalties and, in extreme cases, even prosecution. On the other hand, a tax professional will offer accurate and updated advice based on latest rules and regulations.


What companies can do

Companies are forever trying to attract talent by offering the best pay packages. Indeed, apart from job profile and growth prospects, the financial part of the package is critical for employees. This is why some people even switch jobs for a marginal hike.


However, many companies believe they can do little beyond offering a high CTC package. This is a misconception. Instead of spending crores on trying to acquire and retain talent, employers can redesign their pay packages so that the tax liability of the individual is reduced to the minimum. They can also arrange for tax planning sessions for employees where professionals counsel them on the best ways to reduce their tax liability. Some of these measures cost virtually nothing while others add barely a fraction to the total employee cost. But they can reduce the enormous waste of hard earned money that is deducted as TDS from the salaries of their employees every month.


Take for example, the inclusion of New Pension Scheme (NPS) benefit in the CTC structure. Up to 10% of the basic salary of an individual is fully tax deductible if put in the NPS under Section 80CCD(2). This means 10% of the basic salary becomes tax free if the company offers this benefit to its employees. This way, someone in the 30% tax bracket can effectively save tax equal to 3% of his basic salary, which is no small feat. For the company, this step requires minimal additional expense because the NPS Trust manages the entire back-end and record keeping.


Some companies don't want to tinker with the pay packages or get involved in activities that are not part of their core operations. This is a blinkered view. Instead of letting them suffer a high TDS, companies should step in and help their employees optimise their tax.


Where to begin?

Employees submit the declaration of tax planning investments around June or July and give proof of these tax-saving investments around December-January. Their declaration of intent and proof of investments will show where they are going wrong and how the problems can be fixed.


It's not that the tax rate in India is high or that there are not enough investment opportunities.The problem has more to do with misconceived notions and ignorance about tax planning. Some people may not be even aware of the various deductions they can claim or the exemptions they are eligible for. Others may know about tax matters but could be going wrong in their investment choices. So, this is the best time for a company to engage with its employees and help them optimise their tax planning.


Tax optimisation, not tax evasion

It is important to note that the tax saving and optimisation strategies are not in contravention of the law. Tax is the price we pay for civilised society. Indeed, the revenue collected by the government is the lifeblood of the nation.

We believe that paying tax is good, but that saving tax is better, and saving tax with expert guidance to reach one's goals is best. So, the tax saving suggestions offered by tax experts should not be construed as attempts to evade tax.







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3. Tata India Tax Savings Fund

4. BNP Paribas Long Term Equity Fund



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