It’s the takehome that matters

MUMBAI:   “I’ll make an offer you cannot resist,” was a line Shalini Saxena had heard in zillions of Hollywood movies. But, somehow, when it came to her job offers it had never held true. And now, after nearly two years of trying, she had been made an offer which had all the makings of a good job. She liked the profile offered to her; the people she would work with seemed kind enough; and the new office was just a half an hour’s drive from home.

But, there was a hitch — the company was just about ready to match her current salary. Her total package in her present job worked out to Rs 10.11 lakh and that was all she was being offered. She found herself humming the old Johnny Cash number, “I don’t like it, but I guess things happen that way.”

As she was sipping coffee, watching the sea and ruminating whether to take up this offer, she heard a familiar voice in the background. “Hey Shalini, what’s up with you? I never thought you were the coffee shop variety,” Kavi Kumar shouted out.

Now, Kavi was the last person she expected to run into. She would have to get out of this place fast, before he began chewing her brains. “Oh, hi Kavi, things change. Plus it’s that time of the day when most bars wouldn’t have opened for business,” she replied, hoping he would get the message.

“Heard my company has made you an offer?” Kavi asked. Oh my God. He works there, too? That’s more reason not to take the offer, she told herself. “Yup they have. But I’d rather not take the offer.”

“And why, if I may ask,” he replied, making himself comfortable in the chair next to her.
“Well the money ain’t good.” “Money can’t buy you love, babes.” “We’re talking jobs here, Kavi.”

“I meant, love for the job… Show me that offer letter and your current salary structure.”
Much as she wanted to run away, Shalini couldn’t but oblige for some reason. Kavi was an old friend. Besides, now that she had decided not to take up the job, what was the harm in letting him in on it?

Kavi got busy working on a spreadsheet on his laptop and remained silent for five minutes.

“Well, well. This is interesting. Our company has offered you a raise of around 9%, which sure isn’t great in this job market. But, looking at the kind of job profile you’ve been offered and the fact that you are going nowhere in your current job, it’s pretty good.”

“But, how can that be? They are offering the same salary,” she protested.
“The package might be the same, but it is structured differently. As you see here (see table), the offer is heavy on the reimbursement side. Now, reimbursements are not taxable as long as you are able to provide the bills. In case of your present job, there are no reimbursements, so most of your salary is taxable. Your basic salary of Rs 50,000 per month is taxable. Other than this, your entire house rent allowance (HRA) is not tax-free. The exemption in case of HRA is restricted to a minimum of:
*The actual HRA, which is Rs 25,000 in your case
*The actual rent paid less 10% of salary, where salary includes the basic and dearness allowance. In your case, the actual rent paid is Rs 21, 000 per month. Subtracting 10% of the basic (there being no dearness allowance in your case), or Rs 5,000, from this leaves you with Rs 16,000.
*50% of the salary if the rented house is situated at Mumbai, Chennai, Kolkata and Delhi and 40% of the salary in any other cases. This works out to Rs 25,000, too.
The least of the three options is Rs 16,000, which means the rest of your HRA (Rs 25,000 - Rs 16,000 = Rs 9,000) is taxable.

Your total taxable income thus comes to Rs 59,000 per month (Rs 50,000 + Rs 9,000) or Rs 7,08,000 for the year. After taking into account various deductions and the monthly contribution you make towards PF, the current take home salary works out to Rs 67,293.

“OK, but how’s the new offer any better?” asked Shalini.

“Here, your basic salary is the only part of your salary that is taxable. Hence, the total taxable salary for the year amounts to Rs 4,20,000. After taking into account your various deductions and monthly contribution to PF, the take home salary works out to Rs 73,341,” he replied.

“I am impressed, Kavi. Didn’t think you had the grey cells to crack this. But, what is this entry about fringe benefit tax and why am I paying it? Isn’t that supposed to be paid by the companies?” she asked.

“Well, yes, it is supposed to be paid by the company. In your case, the fringe benefits or the reimbursements you are entitled to are taxable at the rate of 6.78% of the total fringe benefits, but the company has passed on this tax to you, making it a part of your salary.

But don’t you worry about that. Remember that if what is being offered to you as a reimbursement was a part of your normal salary, it would taxable at the rate of 30%, the tax bracket you fall into,” he replied, bringing the debate to an end.
(The example is hypothetical)