Maximize Your Tax Benefits

Ensure your employees receive the maximum tax benefits available under Indian regulations. Our expert team handles all tax-related matters, providing personalized tax planning and compliance services to optimize take-home pay and reduce liabilities. 

Wisemonk is a leader in Employer of Record (EOR) on G2
Wisemonk is a leader in Employer of Record (EOR) on G2
Wisemonk is a leader in Asia Employer of Record (EOR) on G2
Wisemonk is a leader in Employer of Record (EOR) on G2
Wisemonk is a leader in Employer of Record (EOR) on G2
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Employee Tax Optimization in India

In the post-pandemic world, remote work has become the new normal, with over 70% of the global workforce working remotely at least once a week. For many skilled professionals in India, this has opened up exciting opportunities to work for foreign firms while enjoying the comfort and flexibility of working from home. However, earning a handsome salary from an overseas employer comes with a significant drawback - a large portion of your income is lost to taxes in India.

Did you know that the salary you receive for services rendered in India is taxable, regardless of your residential status or where the payment is received? Moreover, with the new tax regime introduced in 2020, individuals earning above ₹15 lakhs per annum now fall into the 30% tax bracket. This means that for every ₹100 you earn, ₹30 goes to the government as income tax.

But what if there was a way to optimize your taxes and take home a larger portion of your hard-earned money? This is where an Employer of Record (EOR) comes in. An EOR acts as your legal employer in India, handling all the complex tax regulations, statutory contributions, and compliance requirements on your behalf. By partnering with an EOR, you can not only reduce your tax liabilities but also avail of certain tax exemptions and benefits under Indian laws.

In this blog post, we will delve into how an EOR can help you optimize your taxes as a remote worker in India. We will explore the various tax implications, exemptions, and benefits available, and how an EOR can simplify the process for you. So, if you're ready to take control of your taxes and maximize your take-home pay, read on!

Tax Optimization Impact on Take-Home Salary in India

  • For a software developer earning ₹30 lakhs (approximately $37,500) per annum, the tax liability without any optimization can be as high as ₹6.6 lakhs (approximately $8,250), resulting in a take-home salary of ₹23.4 lakhs (approximately $29,250).
  • With the help of an EOR service and optimal salary structuring, the same individual could potentially save up to ₹1.65 lakhs (approximately $2,060) in taxes, increasing their take-home pay to ₹25.05 lakhs (approximately $31,310).
  • According to a report by EY, proper structuring of salary components can lead to tax savings of up to 20-25% for high-income earners in India.

Example Salary Structure & Tax Calculation

Restructuring the salary can lead to a significantly lower tax.

Employee Tax Optimization

List of Tax-Saving Mechanisms in India

In India, employees can optimize their taxes through various methods. Here is a detailed list of some common tax optimization strategies:

  1. Utilizing Section 80C Deductions
    • National Pension System (NPS)
    • Public Provident Fund (PPF)
    • Employee Provident Fund (EPF)
    • National Savings Certificate (NSC)
    • Life Insurance Premiums
    • Other Section 80C Deductions
  2. National Pension System (NPS) (Section 80CCD)
  3. Tax-Free Allowances and Perquisites
    • Meal Cards, Fuel Allowance, Mobile & Internet Allowance, Gift Allowance
    • Attire/Apparel Allowance, Books and Periodicals Allowance
  4. Health Insurance Premiums (Section 80D)
  5. House Rent Allowance (HRA)
  6. Standard Deduction
  7. Leave Travel Allowance (LTA)
  8. Interest on Home Loan (Section 24)
  9. Charitable Donations (Section 80G)
  10. Savings Account Interest (Section 80TTA)
  11. Education Loan Interest (Section 80E)
  12. Medical Treatment (Section 80DDB)

Utilizing Section 80C Deductions

Section 80C of the Income Tax Act, 1961, is one of the most popular and widely used sections for tax-saving investments in India. It allows individuals and Hindu Undivided Families (HUFs) to claim tax deductions from their gross total income, thereby reducing their taxable income. The maximum tax deductions limit under Section 80C is ₹1.5 lakh per financial year. Here are some key investment options and expenses that qualify for deductions under Section 80C:

  1. National Pension System (NPS): A retirement savings scheme with additional benefits under Section 80CCD(1B), offering market-linked returns. Contributions up to ₹50,000 are eligible for additional deduction under Section 80CCD(1B).
  2. Public Provident Fund (PPF): A long-term savings scheme with a 15-year lock-in period, offering an interest rate of 7.1% per annum. Both the interest earned and the maturity amount are tax-free.
  3. Employee Provident Fund (EPF): Contributions made by employees towards EPF are eligible for tax deductions. The current interest rate is 8.15% per annum, and the amount is tax-free upon withdrawal after a specified period.
  4. National Savings Certificate (NSC): A fixed income investment scheme with a 5-year lock-in period, offering an interest rate of 7.7% per annum. The interest earned is reinvested and qualifies for deduction.
  5. Life Insurance Premiums: Premiums paid for life insurance policies for self, spouse, and children are eligible for deduction. The policy must be approved by the Insurance Regulatory and Development Authority of India (IRDAI).
  6. Other Section 80C deductions, including Equity-Linked Savings Scheme (ELSS), Principal Repayment of Home Loan, Tuition Fees for Children, Sukanya Samriddhi Yojana (SSY), 5-Year Fixed Deposit (FD), Senior Citizens Savings Scheme (SCSS), and Unit Linked Insurance Plan (ULIP), will be discussed in detail in the article on Section 80C deductions and exemptions.

National Pension System (NPS) (Section 80CCD)

The National Pension System (NPS) is a government-sponsored pension scheme that allows individuals to make contributions towards their retirement corpus. Contributions made to the NPS are eligible for tax deductions under Section 80CCD of the Income Tax Act, 1961.Under Section 80CCD, there are two main sub-sections:

  1. Section 80CCD(1): This section allows individuals to claim a deduction of up to ₹1.5 lakh per annum for their contributions towards the NPS. However, this deduction is subject to the overall limit of ₹1.5 lakh under Section 80CCE, which includes deductions under Sections 80C, 80CCC, and 80CCD(1).
  2. Section 80CCD(1B): To further incentivize investments in the NPS, the government introduced Section 80CCD(1B) in 2015. This section allows individuals to claim an additional deduction of up to ₹50,000 per annum for their contributions towards the NPS, over and above the ₹1.5 lakh limit under Section 80CCD(1).

*The limit of ₹1,50,000 deduction is inclusive of Section 80C, 80CCC and 80CCD(1) deductions. This means that a maximum of ₹ 1,50,000 can be claimed under all three sections combined. Section 80CCD(1B) deduction of up to₹ 50,000 is over and above this limit. Therefore, under Sections 80C, 80CCC, 80CCD(1) and 80CCD(1B), a maximum deduction of ₹ 2,00,000 can be claimed.

It's important to note that the deduction under Section 80CCD(1B) is available only if the individual opts for the old tax regime. If they choose the new tax regime introduced in the Union Budget 2020, they will not be eligible for these additional tax deductions.

Tax-Free Allowances and Perquisites

The Income Tax Act, 1961, provides for certain allowances and perquisites received by employees from their employers to be exempt from taxation, subject to specific conditions and limits. These tax-free allowances and perquisites can help employees reduce their taxable income and overall tax liability. Here are some common tax-free allowances and perquisites:

  1. Meal Cards: Employers may provide meal cards or vouchers to employees, which are exempt from tax up to ₹50 per meal. These cards can be used at specified outlets to purchase food and beverages.
  2. Fuel Allowance: Reimbursements for fuel expenses incurred for official purposes are tax-free. The exemption is subject to the actual amount spent and must be supported by proper documentation.
  3. Mobile and Internet Allowance: Reimbursements for mobile phone and internet expenses incurred for official purposes are exempt from tax. Employees must provide bills and other relevant documents to claim this exemption.
  4. Gift Allowance: Gifts provided by the employer to the employee are tax-free up to ₹5,000 per annum. Any amount exceeding this limit is taxable as perquisites.
  5. Attire/Apparel Allowance: Allowances provided for the purchase or maintenance of uniforms or work-related attire are exempt from tax. This exemption is applicable only if the attire is necessary for the performance of official duties.
  6. Books and Periodicals Allowance: Reimbursements for expenses incurred on books, newspapers, journals, and periodicals required for official purposes are tax-free. Employees must provide receipts and other relevant documents to claim this exemption.

These tax-free allowances and perquisites are subject to specific rules and conditions laid down by the Income Tax Act. Employees should carefully review their eligibility and compliance requirements to avail of these benefits. Proper documentation and adherence to the prescribed limits are essential to ensure that these allowances and perquisites remain tax-exempt. By leveraging these exemptions, employees can effectively reduce their taxable income and optimize their tax savings.

Flexible Benefits Plan

Health Insurance Premiums (Section 80D)

Section 80D of the Income Tax Act, 1961, provides deductions for premiums paid towards health insurance policies. This section aims to encourage individuals to secure health insurance for themselves and their families. The deductions available under Section 80D are as follows:

  • Self, Spouse, and Children: An individual can claim a deduction of up to ₹25,000 per annum for premiums paid towards health insurance for self, spouse, and dependent children. This includes policies purchased for preventive health check-ups, which are capped at ₹5,000 within the overall limit.
  • Parents: An additional deduction of up to ₹25,000 per annum is available for premiums paid towards health insurance for parents. If the parents are senior citizens (aged 60 years or above), the deduction limit increases to ₹50,000 per annum.
  • Preventive Health Check-ups: Within the overall limit, expenses incurred on preventive health check-ups are eligible for a deduction of up to ₹5,000. This amount is included in the total deduction limit and not in addition to it.

For example, if an individual pays ₹20,000 for their own health insurance and ₹30,000 for their senior citizen parents' health insurance, they can claim a total deduction of ₹50,000 (₹20,000 + ₹30,000) under Section 80D.

House Rent Allowance (HRA)

House Rent Allowance (HRA) is a component of the salary provided by employers to employees to cover rental expenses. Employees living in rented accommodation can claim HRA exemption under Section 10(13A) of the Income Tax Act, 1961. The exemption is calculated as the least of the following three amounts:

  1. Actual HRA Received: The total HRA amount received from the employer during the financial year.
  2. 50% of Salary (for Metro Cities) or 40% of Salary (for Non-Metro Cities): Salary here includes basic salary, dearness allowance (if it forms part of retirement benefits), and commission based on a fixed percentage of turnover.
  3. Rent Paid Minus 10% of Salary: The actual rent paid by the employee minus 10% of their salary.

For example, if an employee in a metro city receives an HRA of ₹1,00,000, has a basic salary of ₹3,00,000, and pays an annual rent of ₹1,20,000, the HRA exemption would be calculated as follows:

  • Actual HRA received: ₹1,00,000
  • 50% of salary: ₹1,50,000 (50% of ₹3,00,000)
  • Rent paid minus 10% of salary: ₹90,000 (₹1,20,000 - ₹30,000)

The least of these amounts is ₹90,000, which would be the exempted House Rent Allowance (HRA). The remaining HRA (₹1,00,000 - ₹90,000 = ₹10,000) would be taxable.

Standard Deduction

The standard deduction is a flat amount that is deducted from the gross salary of salaried employees, reducing their taxable income directly. Introduced in the Union Budget 2018, the standard deduction replaced the earlier exemptions for transport allowance and medical reimbursement.

As of the current financial year, the standard deduction available to all salaried employees is ₹50,000 per annum. This deduction simplifies the tax calculation process and provides a straightforward way to reduce taxable income without the need for specific documentation or proof of expenses.

For example, if an employee has a gross salary of ₹6,00,000, the taxable income after applying the standard deduction would be ₹5,50,000 (₹6,00,000 - ₹50,000).

Leave Travel Allowance (LTA)

Leave Travel Allowance (LTA) is a component of the salary package provided by employers to cover travel expenses incurred by employees while on leave. LTA exemption is available for travel within India and can be claimed for the employee and their family members. The exemption is subject to certain conditions and limits:

  1. Travel Expenses: Only the cost of travel (air, rail, or bus fare) is eligible for exemption. Expenses on food, accommodation, and other incidental costs are not covered.
  2. Frequency: LTA exemption can be claimed for two journeys in a block of four calendar years. The current block is 2022-2025.
  3. Family Members: The exemption covers the employee, their spouse, children, and dependent parents and siblings.

For example, if an employee incurs travel expenses of ₹30,000 for a family trip within India, they can claim this amount as LTA exemption, provided it meets the specified conditions.

Interest on Home Loan (Section 24)

Section 24 of the Income Tax Act, 1961, allows individuals to claim deductions on the interest paid on home loans. The tax deductions are categorized based on the type of property:

  1. Self-Occupied Property: For a self-occupied property, the maximum deduction available on the interest paid is ₹2 lakh per annum. This deduction is applicable if the loan is taken for the purchase or construction of the property, and the construction is completed within five years from the end of the financial year in which the loan was taken.
  2. Let-Out Property: For a let-out property, there is no upper limit on the deduction for interest paid. However, the overall loss that can be set off against other income is capped at ₹2 lakh per annum, with the remaining loss carried forward to subsequent years.

For example, if an individual pays ₹2.5 lakh as interest on a home loan for a self-occupied property, they can claim a deduction of ₹2 lakh under Section 24. If the property is let out, the entire ₹2.5 lakh can be claimed as a deduction, subject to the overall loss set-off limit.

Charitable Donations (Section 80G)

Section 80G allows tax deductions for donations made to specified charitable institutions and funds. Deductions range from 50-100% of the donated amount, with or without qualifying limits based on the recipient organization. Key categories include 100% deduction without limit for PM Relief Funds, 50% without limit for institutions like PM's Drought Relief Fund, 100% deduction up to 10% of income for local authorities/Olympic Association, and 50% up to 10% for other approved charities. Donors must obtain receipts with details like amount, organization registration number to claim the deduction in their tax returns.

Savings Account Interest (Section 80TTA)

Section 80TTA provides a deduction up to ₹10,000 per financial year for interest earned on savings accounts with banks, cooperative societies, and post offices. It is available to individuals and HUFs, excluding senior citizens who qualify under 80TTB. Interest from fixed/recurring deposits and corporate bonds is ineligible. Taxpayers must report the interest under "Income from Other Sources" and claim the deduction while filing returns.

Education Loan Interest (Section 80E)

Section 80E allows an unlimited deduction for interest paid on education loans taken from approved institutions for the higher education of self, spouse, children, or legal wards. The deduction can be claimed for 8 years starting from repayment commencement or until interest is fully paid, whichever is earlier. Proof of interest payment like bank certificates must be provided with tax returns.

Medical Treatment (Section 80DDB):

Section 80DDB provides deductions for medical expenses incurred for treatment of specified diseases like cancer, AIDS, and neurological disorders for self or dependents. The maximum deduction is ₹40,000 for non-senior citizens and ₹1,00,000 for senior citizens, subject to actual expenses. Prescriptions from specialist doctors with details like the patient's name, age, and disease are required along with tax returns to claim the deduction.


Q1. What are the tax benefits of investing in life insurance plans?

A1. Life insurance premiums are eligible for tax deductions under Section 80C up to ₹1.5 lakh per annum. Additionally, the maturity proceeds are tax-exempt under Section 10(10D), subject to certain conditions.

Q2. Can I claim tax benefits on my home loan?

A2. Yes, you can claim tax deductions on your home loan interest under Section 24(b) up to ₹2 lakh per annum for a self-occupied property. The principal repayment qualifies for deduction under Section 80C up to ₹1.5 lakh per annum.

Q3. What is the deduction under Section 80C?

A3. Section 80C allows you to claim deductions up to ₹1.5 lakh per annum on investments like Public Provident Fund (PPF), Employee Provident Fund (EPF), life insurance premiums, principal repayment of home loans, and more.

Q4. Can I claim deductions under Section 80D for health insurance premiums?

A4. Yes, you can claim deductions under Section 80D for health insurance premiums paid for self, spouse, children, and parents. The maximum deduction limit varies based on the age of the insured individuals.

Q5. What are the major income tax deductions available to salaried individuals?

A5. Some major income tax deductions for salaried individuals include standard deduction, deductions under Section 80C, Section 80D (health insurance premiums), Section 80E (education loan interest), House Rent Allowance (HRA), and Leave Travel Allowance (LTA).

Q6. Can I claim deductions for donations made to charitable organizations?

A6. Yes, you can claim deductions under Section 80G for donations made to eligible charitable organizations, subject to certain limits and conditions.

Q7. How can I save tax on my income?

A7. You can save tax on your income by investing in tax-saving instruments like PPF, EPF, life insurance plans, and ELSS mutual funds, which are eligible for deductions under Section 80C. Additionally, you can claim deductions for expenses like home loan interest, health insurance premiums, and education loan interest.

Q8. What are the tax-saving investment options available under Section 80C?

A8. Some popular tax-saving investment options under Section 80C include PPF, EPF, life insurance premiums, ELSS mutual funds, National Savings Certificate (NSC), and principal repayment of home loans.

Q9. What is the tax exemption limit for income from salaries?

A9. For the financial year 2023-24, the basic tax exemption limit for income from salaries is ₹2.5 lakh for individuals below 60 years of age and ₹3 lakh for individuals aged 60 years and above but below 80 years.

Q10. Are there any tax exemptions for senior citizens?

A10. Yes, senior citizens aged 60 years and above are eligible for higher tax exemption limits and deductions. For instance, they can claim a deduction of up to ₹50,000 on interest income from savings accounts under Section 80TTB.

Q11. What is the due date for filing income tax returns?

A11. For individuals whose accounts are not required to be audited, the due date for filing income tax returns is July 31 of the assessment year. For individuals whose accounts need to be audited, the due date is September 30 of the assessment year.

Q12. What is the penalty for late filing of income tax returns?

A12. If you file your income tax return after the due date but before December 31 of the assessment year, you may have to pay a late filing fee of ₹5,000. If you file your return after December 31, the late filing fee is ₹10,000.

Q13. What are the tax exemptions available on House Rent Allowance (HRA)?

A13. Salaried individuals receiving HRA as part of their salary can claim exemption on the least of the following: actual HRA received, rent paid minus 10% of salary, or 50% of salary (for metro cities) or 40% of salary (for non-metro cities).

Q14. Are there any tax exemptions for investments in the National Pension System (NPS)?

A14. Yes, you can claim an additional deduction of up to ₹50,000 under Section 80CCD(1B) for investments in the NPS, over and above the deduction of ₹1.5 lakh under Section 80C.

Q15. How can I save tax on my capital gains?

A15. You can save tax on your long-term capital gains by investing the proceeds in specified bonds or purchasing a new residential property within the prescribed time limits. Additionally, you can claim indexation benefits to reduce your taxable long-term capital gains.

Q16. Can I save tax by contributing to a pension fund?

A16. Yes, you can claim deductions under Section 80CCC for contributions made to certain pension funds, subject to a maximum limit of ₹1.5 lakh per annum.