Income tax tips 2018: Should you exit salary reimbursements? Here is what expert recommends

Income tax tips 2018: Who doesn't want to save on taxes? The answer is self-evident. But filing reimbursements month after month is of course a hassle. Perhaps this is why most employees opt out of reimbursements for a higher in-hand salary. According to a survey conducted by Zeta jointly with Nielsen, one in four employees do not understand tax-saving potential through the benefits offered, and prefer opting out of reimbursements. Should they really do that? What do they lose on choosing convenience over a little effort?

Taranpreet, senior consultants with TASS Advisors  says that one can achieve overall better cash flow if one plans reimbursement of expenses as a tax planning route. For example, w.e.f. financial year 2018-19, a standard deduction of Rs 40,000 per annum has been introduced which provides some advantage to employees for improving their cash flow.  

"In addition, employees can opt for reimbursement of leave travel assistance or lease car options to achieve better tax savings," Taranpreet suggested. 

Opting for reimbursements has another benefit. Not merging reimbursements with in-hand salary delays cash collection in the hands of employees and therefore results in more savings eventually. "Where the employee does not have surplus cash, spending per month is restricted to necessities. Therefore, at the end of the year when they receive reimbursement of expenses, the same can be used for saving and investment purpose," elaborated Taranpreet. 

The expert noted that appropriate salary structure is subject to various factors including the employee's personal preferences and employer’s objective to support its employees with perquisites and non-cash elements. His analysis says that there is the significant ratio of employees who believe in larger cash per month over the perquisites.   

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"Though senior level employees may continue with cash free prerequisite to manage their tax planning, entry-level employees shall largely look for higher take-home salary each month," he said.  

"But if effectively plan, one can explore various tax saving options using reimbursement model," he added.