Assessing one’s earning potential by the means of one’s CTC figure is one thing, but it is quite another to assess it by evaluating one’s take-home salary. After being slashed by various taxes and charges, it is possible that your lucrative salary package does not amount to the in-hand paycheck you were hoping for.
That is why every working professional should be well-versed with a few basic points to help them increase their take-home salary, even if there are no changes to their CTC. As a result, you will also be able to increase your earning potential and gain greater financial freedom. All in all, the methods of increasing your salary amount to two major factors:
1. Restructuring your CTC, and
2. Making the most of tax-saving investments
Restructuring your CTC
Typically, the offered CTC figures vary from one company to another, and their structures vary as well. The Indian government mandates minimum contributions for sections such as Employee Provident Fund (EPF), gratuity and Employees’ State Insurance. But otherwise, there are no fixed rules on setting the CTC. Therefore, it falls upon you to restructure, or make the most of, your current CTC structure to maximise your take-home pay.
Here are a few tips you can follow:
- Salaried employees paying rent for their accommodation can claim exemptions on House Rent Allowance or HRA. It is the only component in your CTC that is not fully taxable. Therefore, the amount you pay towards your rent is eligible for partial tax exemption. You can also restructure your basic pay to increase your HRA and bring the number as close to your rent amount as possible.
- You should also make use of Leave Travel Allowance to reimburse your travel expenses and save on tax. It is exempt from tax under Section 10(5) of the Income Tax Act and allows for 2 journeys within the span of 4 years.
- Components such as medical allowance and food coupons are also efficient ways of increasing your take-home pay, saving taxes and enjoying additional benefits. Upto Rs. 15,000 every year can be claimed for medical reimbursements while claims for food coupons can go up to Rs. 26,400.
Other than these, you can maximise your take-home pay by making investments that help you save a considerable amount of taxes annually, such as:
- National Pension Scheme
The National Pension Scheme is a useful tool not just to save for retirement but also to avail tax benefits as an employee. Self-contributions to NPS are exempted up to Rs. 50,000 under Section 80CCD(1B). Moreover, under section 80CCD (2), the employer contribution to NPS is eligible for deduction up to 10% of your basic plus DA.
A host of investments are eligible for deductions under Section 80C:E
- Equity Linked Savings Scheme: Such schemes typically have a comparatively low lock-in period, provide exceptionally high returns and have a minimum investment amount of just Rs. 500.
• Employee Provident Fund: The EPF is primarily a retirement benefits scheme. It can also double as a tax-saving investment. The employee’s contribution to the EPF is eligible for deductions under Section 80C.
• Term Insurance: Availing a term insurance plan can ensure ample coverage for your family at low costs. The premiums for term insurance are eligible for deductions under Section 80C for up to Rs. 1.5 Lakh.
There are also other investments that not only help you avail tax deductions under Section 80C, but also provide essential benefits.
You too can increase your take-home salary by finding effective ways of maximising allowances and reducing your tax burden, as mentioned in these tips. However, apart from saving taxes, it is important to safeguard the financial future of your family by making an investment in a reliable term plan. What’s more, with a term plan, you can effectively avail of deductions and exemptions not only on your premiums, but also on the payout you receive, under Section 10(10D).
You can opt for Aegon Life Insurance Aegon Life Insurance plan. Their iTerm plan provides life cover up to the age of 100 years as well as offers a whole host of benefits. You can also customise your term plan by opting for one of the 3 different term plan variants as well as a number of rider options.