Structuring your salary to maximize take home pay

Increase Take Home salary India

We all know the numbers on the CTC (Cost To Company) and the break up of our salary package. But we are always confused about the take home salary which actually matters. The take home (in Hand) salary depends on how much is your gross income and how much you end up paying as Taxes.

There are two ways to increase your take home pay with the ultimate aim of reducing the total tax that goes out from your pocket:

  • Properly claim your available investment and expenses tax rebates
  • Restructure your salary package to get more tax benefits

Taxes are applicable on most aspects of our salary and we can do nothing about it except make use of the tax rebates to minimize the taxes as much as possible. We have created an automated tool which analyzes your salary components (CTC components) and advises you on how you can effectively increase your take home pay by using the above two methods.

The tool uses an intuitive method and calculates your tax liability considering the various options you choose and guides you to what exactly can be done to minimize your taxes resulting in increased take home pay.

Let us consider a few components which can be used to reduce the tax liability on our salary income:-

    1. Allowances/ Reimbursements: Allowances are normally paid irrespective of the employee actually incurring them. These are fully taxable if no bills are provided. However, if the expenses are incurred actually and bills provided, they are not taxable up to a specified limit under each head.
    2. Conveyance: For conveyance, up to Rs.800 per month is allowed as deduction without providing any bills.
    3. Medical Allowance: Bills have to be provided; up to Rs.15,000 per annum is allowed as deduction. This can be claimed for self, spouse, children, parents and siblings who are dependent on the assessee.
    4. Leave and Travel Allowance: 2 trips in a block of 4 years is allowed and only travel within India can be claimed as deduction. It can be claimed for self, spouse, children, parents but only if the employee (assessee) is travelling along with them. There is no maximum limit on this, but the unutilized amount will be paid once the block is completed (after deducting taxes).
    5. Education Allowance: An amount of up to Rs.2,400 per annum is tax-free.
    6. Qualification Allowance: An amount of Rs.24,000 per annum is tax-free.
    7. Training Allowance: An amount of up to Rs.14,000 per annum is tax-free if the employee provides relevant bills.
    8. Telephone Allowance: An amount of Rs.12,000 per annum is tax free if the phone is used for official purposes and bills submitted.
    9. HRA: House Rent Allowance can be claimed if one lives in a rented premises and the rent exceeds 10% of the salary. The actual HRA exempted from tax is least of the following:
      • The actual amount of HRA received.
      • 40% of salary. This increases to 50% if you are renting out the house in Delhi, Mumbai, Chennai or Kolkata
      • Rent paid minus 10% of salary (basic component dearness allowance)

      You can find out the amount of Tax Exemption on your rent with this online Calculator. The calculator also guides you on the optimum rent that can help you save maximum tax with HRA.
      NOTE:Salary for the purpose of HRA means: Basic D.A (only if it is forming part of salary for retirement benefits) commission (if it’s a fixed % of sales turnover).

For an example of various salary structures and how they can affect your monthly take home salary, just try your hands at the in hand salary calculator here

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