Plan your Salary Structure – Save Tax on Salary

My friend Gopal was really happy that he received a Rs. 12 lakh per annum offer letter. Rs. 1 lakh per month was a huge amount for Gopal who hails from a middle class background. But he was in for a rude shock when the salary hit his bank account at the end of the month. It was just Rs. 70,000/-. He came to me asking me to solve the case of the missing 30,000/-.

For most of us, Salary is the main source of Income. Hence, it is very important to plan our salary in such a way that we get the maximum take-home. I’ve seen a lot of my friends (mostly IT sector) who do not understand the components of salary.

Consequently, though the number looks impressive on the offer letter, lots of it gets eroded, when it hits our bank at the end of the month. And ironically, most of us are now allowed to plan our own salary. This means, we are given an amount and a % of Basic salary and we are allowed to plan the rest.

At the time of joining or at the beginning of the financial year, we have an option of planning the structure. This means that it’s just us who are responsible for “Optimum Bank Balance” at the end of the month.

Well, for a person who is totally unaware of the tax implications, here are a few tips to organize your salary to minimize the taxes.

Understanding the components

A typical offer letter would contain a CTC (Cost to Company) and this includes the following items:

  • Basic
  • Allowances (To be discussed in detail later)
  • Provident fund (Employers contribution)
  • Gratuity
  • Super-annuation (if applicable)
  • Value of medical insurance premium (if applicable)

The below example represents the structure of a person having a CTC of Rs. 12,00,000/-

From the example above, it is very clear that we have the power to control nearly 40% of our CTC.


In the below section, we will see how we can reduce the incidence of taxes by some simple planning with the help of simple tools.

#1. HRA

House Rent allowance is a very useful tool if you know how to use it. As per my study of the HRA rules, the optimum HRA component can be planned using a simple formula in the below table. However, in order to get the full benefit, we need to spend money towards the actual rent. Towards the end of the year, we need to submit receipts to the extent of this amount. The below table also shows the amount of actual spending required in order to avail the full benefit.

LocationHRA % of BasicActual rent to be paid as a % of Basic
Delhi, Mumbai, Kolkata, Chennai50%60%
Other places in India40%50%

 #2. Fuel Reimbursement and Conveyance

Fuel Reimbursement is usually based on the company policy. But, nowadays most companies are encouraging this. As per the tax rules, this means that the company has to maintain documentation regarding the usage of office car or the usage of personal car for office use and that this amount should be fair. Therefore, it is very important to put a prudent number to this. Say around Rs. 60,000/- a year. In case, your company does not have Fuel reimbursement, a conveyance can be claimed, but it has to be limited to Rs. 9,200/- per year.

#3. LTA

Leave Travel Allowance is an allowance given twice in a block of 4 years (pre defined by the Income Tax Rules) subject to submission of bills. While it is definitely a tax-saving allowance, it is important to remember that its not a regular one and will be available only once in 2 years and that too only the cost of transportation. Therefore, it is important to keep this amount low. I suggest to keep it at Rs. 15,000/-.

#4. Medical Reimbursement

As per the Tax laws, you can get a medical benefit of Rs. 15,000 /- a year subject to submission of bills. Again, this amount should not be confused with Premium paid by the company towards medical insurance.

#5. Food coupons

Allowance of upto Rs. 50 / – per meal provided per working day is available towards Food coupons. But this would mean your company will have to provide you with food coupons. The value would come up to Rs. 13,200 / – a year (Rs. 50 * 22 working days * 12 months).

So, once we do all this, the structure would look something like this:

ItemsRs.% of Total
Fuel Reimbursement60,0005.0%
Medical reimbursement15,0001.3%
Food Coupons13,2001.1%
Other allowance151,00012.6%


One can clearly see that the taxable portion of the salary has decreased from nearly 40% of CTC to 12% of CTC. The impact is as under:

With PlanningWithout Planning
Flexible Allowance494,200
Fuel Reimbursement60,000
Medical reimbursement15,000
Food Coupons13,200
Other allowance151,000
Deductions for take home:
Take home953,674862,972

Isn’t it nice to have about 10% more in your bank by some simple planning at the beginning of the year?

About the Author

Supriya Mothay is a Chartered accountant by profession, with a passion to write. Being an amateur poet and creative writer, she now blogs on topics on finances, lifestyle and mythology. She likes to relate little philosophies to life and has a capability to break down trivial issues at the granular level and arrive at innovative solutions.

Leave a Reply

  • Ravi

    Hi i have CTC of 6 but i want to save from TDS please help me

  • chetan

    Dear Madam,

    I am joining a new compmany with CTC of 8,00,000/- Rs. I cannot claim HRA as i own a house. Please advise how can i split my salary to get maximum tax benefits

    • Lokesh


      You can show the Rent slip, signed by your wife or mother.

  • hi i getting 4 lacs plus per year give me plan to sava from tax.

  • kamal kapur

    Dear Madam,
    This is the current salary structure in my offer letter.
    basic 40000/- hra 24000/- car allowance 9000/- medical 3332/-, lta 3332/-,bonus 3332/- pf/ppf 4800/- gratuity 1660,tel expense 1500/-, incentive 10000/- . to save maximum tax , what should be the salary structure & % amount against it , i should recommend to the employer. i am based out of mumbai & getting transfered to bangalore . Will not be putting my bom flat on rent, but be taking a PG in blr. Against the car allowance above – the company is provoiding their own car & driver but petrol at actuals. kindly advise . thanks for ur support.

  • kalpeshmistry

    i am earning 65000/-per month please suggest various tools through which i can save maximum tds from my salary so that i can take maximum amount home

  • Preeti

    Dear Sir/Madam,

    I earned 90,000.00 (pm), by the post of General Manager, please suggest a ideal salary structure for maximum take home & minimum Tax liability

  • Ashish Dhuriya

    Dear S/M,
    please suggest me how to save tax, my current ctc is 3,50,000/- year
    where i will have to invest.

  • CA Dhaval

    if you are not receiving HRA then you can take the benefit of section 80GG where you can get the maximum deduction of Rs.24000 p.a.

  • prakash

    My salary is 45ooo/- per month in kolkata.please suggest me a good salary structure to gain maximum tax benefit

  • Most fo the Employers have a fixed salary structure and therefore changing the structure is very difficult

    however, in case your employer agrees to change the Salary Structure, you can make use of all these provisions…