A top shot company has just recruited you. You have been handed over a handsome pay package probably even higher than your peers. However, at the time of receiving the salary the compensation seems to differ from what was originally quoted.
Why is it so? This is primarily because the said company has structured its CTC (cost-to-company) in such a way.
It may be noted that designing the CTC is completely at the company's discretion and does not adhere to any prescribed government rule. As a result the employee has to abide by the same irrespective of the way it is designed. Here is a brief guide on this all important but under-rated CTC.
While each company constitutes its CTC in a different manner, three components that are constant in all the firms cost-to-company are the basic retiral benefits, reimbursements and allowances. Apart from these, every other detail varies from firm to firm. Hence, one can customise the CTC to maximise benefits, so to say. How does one do that?
The first and foremost step is to stick to 'basics'.
The basic that comprises of basic pay HRA (house rent allowance) and dearness and special allowances forms the most crucial part of the salary package. Now, the main reason as to why most of us end up paying high taxes is because of the high number that is quoted in the basic pay.
Experts suggest that we can take a sizeable chunk from this basic amount and add it to the 'perk' or allowance lists. However there is a catch. A low amount in this might prove to be a deterrent when it comes to availing loans.
It must be noted that all the parts of the package are taxable except the HRA (house rent allowance) and PF (provident fund) contributions. Since having a reduction in the latter might not be advisable, it is the HRA that needs to be targeted.
This allowance that is generally 40 to 50 per cent of the basic can be tweaked to suit the needs of each employee, without having to make big changes in the actual basic pay.
One major concern faced by employees is their cluelessness on the special allowances they are provided. According to a recent survey, a majority of workers do not realise the benefits these perks give and the caps accordingly liable on them.
It is said that an employee of a firm can avail a maximum of Rs.15,000 every year for medical reimbursements Rs. 26,400 for food coupons, Rs 5,000 as annual gifts and Rs 19,200 as travel allowances.
These carefully split benefits help the employee by increasing the salary that he or she can actually take home, and also help reduce taxes provided orginal bills for the spendings are produced to the company.
This being one way, another suggestion is to reduce these allowances, and make no changes to the basic pay. While this results in the employee taking a lesser amount home it reduces tax liability apart from increasing retiral benefits.
Similarly, another change that could rein in profits is the tweaking done to the provident funds. While the employer's contribution to PF cannot be touched the VPF (voluntary provident fund), can be adjusted according to one's benefits.
Financial experts say that the employee can increase his or her contribution to the VPF as it is better than the PPF (public provident fund) that does not allow one to claim the same for 15 years. This is in contrast to the money that the worker puts in as his or her contribution, as it can be withdrawn without any taxes in a span of five years.
Finally, nothing serves better for a salaried employee than savings, which ought to be the first priority.
