What are Flexible Benefits?
Flexible benefit plans is a way of structuring a CTC structure of an employee while offering employee benefits such as Conveyance and Medical Expenses.
A CTC structure has various components such as Basic, DA, HRA, LTA and Medical Expenses etc. A CTC structure is made up of Taxable components such as Basic Pay and DA and other non-taxable components such as Medical Expenses if claimed by the employee. The Non Taxable components can be availed only by the way of reimbursements against production of receipts.
How flexible benefit plans help your employees?
If you are considering offering your employees flexible benefits, communicating the advantages of the plan is crucial. From the employees’ perspective, flexible benefits is a portion of the salary that can be received against different expenses to primarily save on income tax.
For example – Conveyance and Medical expense are non-taxable components of CTC structures. Thus tax exemption can be availed of against the productions of relevant receipts.
Here are few ways flexible benefit plans help employees –
Way of Saving Tax
While implementing a flexible benefit plan requires that the employer implement an additional payroll deduction to cover costs of these benefits programs. This deduction is taken out of employees’ income before tax is calculated. This means that employees will actually save tax and have a larger take home salary.
More traditional employee benefit programs offer little room for flexibility, and potential candidates may be hesitant to join your company if they can’t find the coverage they’re looking for from your current benefit plan.
Giving your employees options for designing their own benefit coverage plan can help you ensure that each employee receives the coverage they want and deserve. If you have a relatively diverse collection of employees, flexible benefits are a great way to guarantee everyone the best coverage to meet their needs.
How could employees avail Tax Exemption for the Flexible benefit components?
You can reduce your taxable salary and avail of tax exemption by declaring expenses and producing receipts under the Flexible Benefits head such as House Rents.
What happens when an Employee does not claim Flexible Benefit component?
The amount that is unclaimed by the employee is denoted as Unclaimed. Income Tax would be calculated as applicable.
When does this amount get paid to the employee?
Some employers pay the Flexible Benefit Plan amount upfront and ask for receipts of the same at the financial year end. On not submitting the receipt, Income tax is deducted.
On the other hand, employers can deduct the Benefit amount from your monthly salary and it is reimbursed to you after you submit the receipts at financial year end.