I want to know that can we add LTA into monthly salary breakup. In our company they have divided salary into Basic, HRA, Conveyance, Medical, LTA and Special is it correct because as per income tax rule we can claim LTA only twice in 4 year’s. Other wise can we remove LTA and put the LTA amount into special or is there any component which is more favourable to employee?
From India, Bangalore
1From India, Bangalore
Dear SM11,
In general practice LTA is paid once a year and as you rightly pointed out LTA is exempt from tax if it is claimed twice in a block of 4 years.
If you intend paying this on a monthly basis then the purpose of giving exemption is lost. So as you have pointed out it will be beneficial for employees if it is given to them under a different earning head which will be exempt from tax.
For example you can consider setting up a superannuation scheme for your employees wherein 15% of the employees basic salary is deposited with LIC OF INDIA and this amount accrues in the employees account and gets paid as per rules and regulations framed by your company. This is not taxable at the hands of the employee and the employer is also exempt to the extent of contribution to the superannuation fund. The employee gets a monthly pension upon his attaining superannuation or resigning from employment (if such a clause is permitted by the employer)
Regards
M.V.KANNAN
From India, Madras
In general practice LTA is paid once a year and as you rightly pointed out LTA is exempt from tax if it is claimed twice in a block of 4 years.
If you intend paying this on a monthly basis then the purpose of giving exemption is lost. So as you have pointed out it will be beneficial for employees if it is given to them under a different earning head which will be exempt from tax.
For example you can consider setting up a superannuation scheme for your employees wherein 15% of the employees basic salary is deposited with LIC OF INDIA and this amount accrues in the employees account and gets paid as per rules and regulations framed by your company. This is not taxable at the hands of the employee and the employer is also exempt to the extent of contribution to the superannuation fund. The employee gets a monthly pension upon his attaining superannuation or resigning from employment (if such a clause is permitted by the employer)
Regards
M.V.KANNAN
From India, Madras
Dear Sheela,
If you are paying medical allowance, you can permit your employee to claim a sum of Rs.15000/- annually by producing medical bills (reimbursement of medical expenses) and this is exempt from tax.
Likewise some companies issue food vouchers (in the form of Sodexo pass) which is also exempt from tax. But a small rider is attached to this which was recently highlighted by one citehr member. She stated that these coupons which are generally redeemed at departmental stores to purchase grocery is actually not exempt from tax. So you need to check this out before you actually proceed dealing with this.
You can consider granting a flexible allowance package, in other words the CTC component is fixed and the employee can choose the earning head of his choice and get the maximum exemption permissible under the IT act. This suggestion is given because each employee has a different savings pattern. The employee can consult his auditor and make the choice. But the onus on verifying the statements made by the employee will still rest with you as you are the tax deducting authority.
In case you need any further query please feel free to revert.
M.V.KANNAN
From India, Madras
If you are paying medical allowance, you can permit your employee to claim a sum of Rs.15000/- annually by producing medical bills (reimbursement of medical expenses) and this is exempt from tax.
Likewise some companies issue food vouchers (in the form of Sodexo pass) which is also exempt from tax. But a small rider is attached to this which was recently highlighted by one citehr member. She stated that these coupons which are generally redeemed at departmental stores to purchase grocery is actually not exempt from tax. So you need to check this out before you actually proceed dealing with this.
You can consider granting a flexible allowance package, in other words the CTC component is fixed and the employee can choose the earning head of his choice and get the maximum exemption permissible under the IT act. This suggestion is given because each employee has a different savings pattern. The employee can consult his auditor and make the choice. But the onus on verifying the statements made by the employee will still rest with you as you are the tax deducting authority.
In case you need any further query please feel free to revert.
M.V.KANNAN
From India, Madras
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LTA (REDIFF).doc