TAX PLANNING REGARDING COMPENSATION PACKAGE

´  TAX PLANNING REGARDING COMPENSATION PACKAGE

´  CORPORATE TAX PLANNING

´  MEANING OF COMPENSATION PACKAGE

´  COMPENSATION PACKAGE DOES NOT HAVE ANY STATUTORY DEFINITION YET IT IS USED VERY MUCH. IT COULD ALSO BE CALLED SALARY PACKAGE, GROSS SALARY, REMUNERATION TO EMPLOYEE, COST TO COMPANY. COMPENSATION PACKAGE MEANS VARIOUS FORMS OF PAYMENT MADE BY EMPLOYER TO THEIR EMPLOYEES AS PART OF REMUNERATION. IT DOES NOT MEAN ONLY SALARY OR WAGES BUT INCLUDES VARIOUS FORMS OF SALARY SUCH AS BASIC SALARY,ALLOWANCES,PERQUISITES,BONUS, LEAVE SALARY,RETIREMENT BENEFIT LIKE PROVIDENT FUNDS GRATUITY ETC

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´  COMPENSATION PACKAGE OFFERED BY AN EMPLOYER TO THE EMPLOYEES IS A MAJOR ITEM OF EXPENDITURE FOR THE  EMPLOYER AND A TAXABLE SOURCE OF INCOME FOR THE EMPLOYEE

´  FOR AN EMPLOYER TAX PLANNING REGARDING COMPENSATION PACKAGE INVOLVE CLAIMING OF RUMENERATION OF EMPLOYEES AS AN EXPENSE WHILE CALCULATING BUSINESS INCOME WHICH WOULD HELP THE IN REDUCING TAXABLE BUSINESS INCOME AND TAX LIABILITY

´  FOR EMPLOYEE TAX PLANNING REGARDING COMPENSATION PACKAGE INVOLVES LAWFUL REDUCTION OF SALARY INCOME BY CLAIMING VARIOUS EXEMPTIONS AND DEDUCTIONS AS PROVIDED UNDER THE LAW

´  FROM EMPLOYER’S POINT OF VIEW

´  PAYMENTS MADE TO EMPLOYEE, THE SAME WOULD LIKELY TO DEBIT TO HIS PROFIT AND LOSS ACCOUNT AND HE HAS TO PAY LESS TAX

´  BUT IN CASE IF HE IS NOT ABLE TO DEBIT THEN HE WILL HAVE TO PAY TAX

´  THE FOLLOWING ARE THE MAIN ARES OF TAX PLANNING:-

´  EMPLOYEE’S CONTRIBUTION TOWARDS STAFF WELFARE SCHEMES DEDUCTED BY AN EMPLOYER:

1. ANY CONTRIBUTION DEDUCTED BY AN EMPLOYER OUT OF THE SALARY PAYABLE TO EMPLOYEES TOWARD PROVIDENT FUND OR ESI CONTRIBUTION TREATED AS BUSINESS INCOME IN FIRST INSTANCE. IT IS ALLOWED AS BUSINESS EXPENSE U/S 36 (1)(va) IF IT IS DEPOSITED ON OR BEFORE DUE DATE
2. AVOIDING DIS ALLOWANCE OF SALARY AS PER SECTION 40 (a)(iii):

1. THE SALARY PAYABLE OUTSIDE INDIA OR PAYABLE TO NON RESIDENT
2. IF TAX HAS NOT BEEN DEDUCTED THERON NOT DEDUCTED

3. AVOIDING DIS ALLOWANCE OF EXCESSIVE SALARY TO RELATIVE UNDER SECTION 40A(2)
4. PAYMENT OF SALARY EXCEEDING 20,000 IN A DAY MUST BE MADE BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DRAFT BUT IF MADE OTHERWISE THEN 100 % IS DISALLOWED
5. EEMPLOYMENT UNDER MORE THAN ONE EMPLOYER DURING RELEVANT PREVIOUS YEAR: FURNISHING OF THE DETAILS OF SALARY RECEIVED FROM FORMER EMPLOYEE
6. INCOME FROM OTHER HEAD
7. STATEMENT OF PERQUISITES OR PROFIT IN LIEU OF SALARY TO EMPLOYEE
8. ALLOW ABILITY OF DEDUCTION UNDER CHAPTER VI-A
9. DEDUCTION OF TAX AT SOURCE BY THE EMPLOYER UNDER SECTION 192(1)

´  EMPLOYEE’S POINT OF VIEW

´  WHILE NEGOTIATING ALLOWANCES,PERKS,BENEFITS SHOULD TRY TO GET WHICH ARE EXEMPTED UNDER SECTION 10 AND 17

´  PROPER CONSIDERATION TO THE FOLLOWING FACTS:-

1. WHETHER HE SHOULD ACCPET CONSOLIDATED SALARY OR BASIC SALARY PLUS DA
2. WHETHER TO ACCEPT RENT FREE ACCOMMODATION OR A CASH HOUSE RENT ALLOWANCE
3. WHETHER TO GET MEDICAL ALLOWANCE OR REIMBURSEMENT OF MEDICAL FACILITIES OR FREE MEDICAL FACILITIES
4. WHETHER TO GET A CASH CONVEYANCE ALLOWANCE  OR CAR PERK OR ACTUAL REIMBURSEMENT      
5. WHETHER TO EN CASH LEAVE DURING SERVICE OR GET IT ACCUMULATED AND THEN EN CASH IT AT THE TIME OF RETIREMENT
6. WHETHER TO ACCEPT EDUCATIONAL ALLOWANCE OR REIMBURSEMENT OF EDUCATION EXPENSES
7. WHETHER TO ACCEPT LUNCH ALLOWANCE OR ACTUAL LUNCH FROM THE EMPLOYER
8. WHETHER TO GET ALLOWANCE FOR GARDENER,SWEEPER ETC OR ACTUAL FREE SERVICES OF SUCH SERVANTS
9. WHETHER TO ACCEPT COMMUTED PENSION OR MONHLY PENSION