« Back to article

Print this article

Easy ways to increase YOUR take-home pay

Everyone could do with a little extra money but how do you get there? am22tech.com lists out simple ways to do it

It is a common question that always hovers on a salaried professional's mind. Given the fixed amount of salary, what all you can do to increase the net take home amount? Is it really possible at first place?

Well, there are multiple options available for you to increase your take home given the fixed CTC or gross income and all options point to only one direction i.e. REDUCE TAXES! So, we will talk about options available to you WRT to saving taxes.

The very first step in doing this is to understand what is meant by a CTC. If you know the various components included in your CTC, you can very well use them to your benefit.

Please note that there is a difference between the CTC amount and take home salary amount. You cannot simply assume your monthly take home to be (Yearly CTC)/12.

Define your take-home salary

Define your take-home salary

Take-home pay = Direct Pay Out - Income tax - Employee PF - Other deductions, if any

There are two primary ways of reducing taxes are (If you keep the CTC amount fixed):

1. Restructuring the CTC components

This method involves including maximum amounts of tax saving components like Medical allowance, converyance allowances etc. and reducing the allowances, which do not attract any tax rebates.

2. Make FULL use of tax saving components

Obviously, the only way a salaried person can increase his take home is to maximise his tax rebates and pay as less tax as possible.

Reducing taxes is exactly what a businessman does to increase his profit and take home money. Income tax laws in India give ample of options for a businessman to save tax by allowing all the expenses with no limits to carry on his business.

Salaried person also has some options but only to a certain extent. So, I would advise you to make FULL use of these options and take away more in your pocket!!

Common tax saving options

Conveyance Allowance

Can you drive to your office in Rs 800 per month given the soaring prices of fuel in our country? Well, Indian government feels that you can.

They only allow you to get the tax rebate of Rs 800 per month for earning the salary. They still feel that the fuel prices are same for a salaried person as they were at the time of writing down income tax laws.

So, please do ask yourConveya employer to include this component in your CTC, if he has not done so.

You are not required to furnish any bills/receipts to get this benefit. Hence, any amount lesser than Rs 800 per month is a wasted opportunity to increase take home pay.

House Rent Allowance (HRA)

The most common component of your salary package is HRA. This is meant to give you tax rebate if you are staying in a rented house. HRA amount is calculated as a percentage of Basic salary (40-50%).

The tax rebate that you get on HRA is dependent of three clever rules of rules Income tax based on your basic salary, the actual rent you pay and your city of residence in India.

Unfortunately, our government feels that there are only four Metro cities in India i.e. Chennai, Delhi, Mumbai and Kolkata.

So, people living in these cities are eligible to get 50% of tax rebate leaving others to get only 40%.

Also, note that Rent paid = HRA received does not give you maximum amount of tax rebate. If you want to maximise the tax exemption, you should know how to hack these rules.

If you stay in your own house belonging to your parents, you can still claim HRA by paying the rent to your parents.

But, this rent would certainly be added to your parent's taxable income. This trick is helpful if they don;t have any other source of income. You can certainly save huge tax liability if you can do this.

If you are claiming tax benefit on home loan, you can still claim HRA. You need to provide documents to prove that your own home (on which you have taken home loan) is not occupied by you as it is far away from your office and you are staying in a rented house near your office.

Medical Allowance

You are allowed to claim up to Rs 15,000 as tax rebate for any expenses made on medical expenses in a year.

This includes you dependents i.e. spouse, children and dependent parents.

Telephone Allowance

Some companies do reimburse the telephone or mobile bills incurred by you. This amount becomes non-taxable for you if they reimburse it to you on actual bill amount.

Of course, this is an amount which you would have spent even if it was not reimbursed but after paying an income tax.

Food coupons

This allowance is given in the form of coupons, which are meant to be spent on eating meals in office time. You can save good amount of tax if you can get food coupons for maximum number of days in a month.

Income tax rules mentions meal allowance through meal vouchers can be provided up to Rs 50 per meal during working hours.

Assuming that any employee would consume at least two meals during work hours (breakfast and lunch or evening snacks and dinner), and hence at the rate of Rs 50 per meal and Rs 35 for tea and snacks, the company could provide Rs135 per working day as the maximum allowance to the employee.

Hence, if you opt for Meal Vouchers @ Rs. 135/- (Rs 50 per meal x 2 + Rs 35 for tea and snacks) per working day, instead of cash in your salary, you can save huge amount of tax Rs. 42120 (Rs 135 x 26 days x 12 months) as per your tax slab.

Make full use of investments tax rebate

You are allowed to claim tax rebate when you invest money in long term savings like insurance policies, mutual funds etc.

Investing is a good habit and helps you save tax resulting in increased take home. Total allowed amount is Rs 1 lakh per annum + Rs 20,000 reserved for investment in Infrastructure bonds (year 2011-12).

Voluntary Provident Fund (VPF)

Though this does not offer a direct increase in your take home pay, it certainly reduces your tax and brings more money on your side.

VPF is a voluntary amount that you contribute to your provident fund every month. This amount is fully tax exempted and hence reduces your taxable income.

Leave Travel Allowance (LTA)

You should submit your bills to claim tax benefit on a leisure travel with your family.

This allowance is taxable if you do NOT travel or travel but do not claim. So, why miss the chance of saving tax?

Claim tax benefit on home loan

Did you know that you could reduce your taxable income upto Rs 2.5 lakh on your home loan repayment? Yes, the principal amount is tax deductible up to Rs 1 lakh and loan interest up to Rs 1.5 lakh per annum (year 2011-12).

This is a substantial amount and you SHOULD provide the relevant proofs to claim the tax benefit.