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A penny saved is a penny earned: Increase your take home salary

You may bag the best offer from your college or a great jump from what you are getting from your current employer but when it comes to take home salary, you might be getting a little less. Here are some basic tips which if you can negotiate will help you increase your net pay. Restructuring of your salary may be little difficult if you are getting a campus placement where you have a very little control over the offered package. Although this could be negotiated when you are in a position and this will help you not only in increasing your salary but also reducing the tax liability.

For understanding this in a better way, first, you need to understand the break ups of salary. Following are the key components of the gross total income/ CTC and how you can tweak them a little to boost your take home pay and save tax.

Salary ComponentsTax treatmentHow to tweak
Basic Salary + Dearness AllowanceFully TaxableReduce your basic salary and adjust the balance amount to tax free perks
House Rent AllowanceLeast of the three is exempted:

a.       HRA received

b.      50% (40% for non-metros) of basic.

c.       Actual rent paid less 10% of salary.

The figure should be close to your actual rent paid.
Travelling AllowanceExempted upto Rs. 1600 per monthGet maximum benefit of Rs. 19200 per annum.
Medical expensesExempted upto Rs. 1250 per monthGet maximum benefit of Rs. 15000 per annum by submitted medical bills. Tie up with a medical shop and buy medicines, first aid kits and other necessities.
Meal CouponsTax exempt up to Rs. 50 per meal.Utilize up to the maximum
EPFFully exemptedIt is unaltered
NPSAdditional deduction of Rs. 50,000 over and above the limit of Rs. 1, 50,000.You can claim deduction if tax liability is not nit even after exhausting Sec 80 C limit.
Entertainment AllowancesExempted against original billProduce the original bill to claim the benefits
Internet ExpensesExempted against original billProduce the original bill to claim the benefits
Newspaper &Books expensesExempted against original billProduce the original bill to claim the benefits
Special AllowancesFully TaxableUse the entire money for tax free perks


Apart from the above-mentioned break ups, there are various ways through which you can increase your savings also.

  • Contribution to PF: The contribution by the employer to the provident fund is unaltered (12%) but the employee’s contribution can be scaled up. You can opt for Voluntary Provident fund and increase your contribution thereby savings a bit more. Although this is beneficial during the initial years when you know your expenses and savings percentage.
  • Repayment of Education Loan: Payment of education loan should the first priority as you would be paying a whopping 12-13% interest. Although you can claim tax benefits under section 80E, prepayment of loan is considered to be a prudent strategy. One option is to withdraw your contribution to EPF which will give you a mere return of 8.7% and payoff your loan liability. (Discuss this with your financial advisor for more clarity).
  • House Rent Allowance: You can claim HRA even if you are living with your family. You can claim the deductions of HRA provided the house is owned by your parents. You have to provide rent receipts although the rent paid to your parents would be taxable to them but it could be claimed as a deduction for house maintenance.
  • Bonus/ Performance Incentive: Many a time’s employees are rewarded with handsome bonuses at the end of the year or on completion of assigned targets. Rather than using them smartly, we end up paying hefty tax on that amount and simultaneously spend the balance in an unplanned manner thereby saving nothing at all. Bonuses are taxable and therefore smart way is to submit your investment declaration proofs in advance thereby receiving the maximum bonus (After deducting tax) and investing lump sum amount in an investment option if expenses are unplanned.


Disclaimer: The tips discussed in the article/blog are subject to policies of the organization where you are working and all of them may not be applicable.


-Prof. Chintan Vadgama

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  1. Excellent Information Sir.

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