Mr. Mahesh got a job offer from a company and seen that though his gross salary increased by 30%, his net take home is increased by less than 20%. He was wondering, how it could be possible. Many of us would be worried about how to maximize our net take home salary. Whether it could be during a job change or during promotion or working in the same company for a longer period. In this article, I would touch up on the possible ways on one can maximize their net take home salary. Some could be applicable to you and some may not be.
What is the salary?
Don’t laugh at me. I am trying to explain what it constitutes. If you are familiar, skip this section.
A take home salary is the amount that a person receives from working after employment taxes, cost of benefits and retirement contribution are deducted. Take home salary is calculated by taking the person’s monthly gross income and subtracting income tax, company medical insurance premium etc. The money that remains is what that person actually gets to take home for paying expenses like mortgage, buying groceries and paying for other purchases. Because of all these payroll deductions a person’s take home salary often differs significantly from their gross pay. Thus, whenever a person is considering a salary offer for a job or promotion, he must consider what their take home salary would be.
Also Read: Gross CTC Vs Net CTC – What are the main differences?
Possible Ways to Maximize your Net Take Home Salary
1) Talk to employer to restructure your salary if possible
In order to save taxes and increase take home salary one can save tax through salary restructuring by talking to the employer about perks and allowances like conveyance, fuel expenses, medical treatment, telephone expense reimbursement, etc. This is useful especially for employees who are joining in the new company and employer can modify the structure (if possible) to maximize the net take home. One of my friends got an offer in Delhi from a MNC Bank. He could negotiate with HR and able to reduce variable pay (based on performance) %age. This way, he was able to maximize the net take home.
2) Complete investment declarations during the beginning of financial year
The investment declaration request is something, which an individual has to submit at the beginning of the financial year to employer. A person’s monthly take home income depends on what is declared on this form. The TDS that gets deducted from the employee’s salary is computed on the basis of the tax deductible investment plan that employee makes during the year. These declarations give the employer a fair estimate of an individual’s annual earning and savings plan at the beginning of the year. Accordingly the employee’s yearly tax liability is calculated and a portion of it is kept on a monthly basis.
Individuals in order to save themselves from paying heavy TDS deductions at the end of the year, they should aim to declare the right amount which will obviously need some planning and calculations. Taxes should be planned in the beginning of the fiscal year so that the people save themselves from over or under declaring their payable taxes.
3) Declare deductions in 80C appropriately
Many of us would would either miss to declare the investments / insurance as per 80C or would declare complete and later on invest only part of the amount. This would show inconsistent monthly take home. Deductions under 80C includes, Investment in PPF, Investments in NSC, Tax saving Mutual funds, 5 years tax saving FD scheme with a bank or post office, children's education expenses, principal amount of housing loan, etc., If you can plan well, you can invest in these amounts every month so that you would not get burdened at year end. You can plan your net take home smoothly.
4) HRA or Home Loan – Depends on tax benefit
Last year, I had taken housing loan and was checking whether I need to claim HRA or home loan. Finally found that home loan interest benefit is high. If you have taken housing loan, you can claim upto Rs 2 Lakhs on interest from housing loan as a benefit. However, if such amount is small, you can opt for the HRA benefit instead of housing loan. You should be smart enough to judge which is beneficial and declare the same in your investment proofs with your employer.
5) Interest on second housing loan
How many of us know that we can claim unlimited interest deduction on second housing loan? If you already have a housing loan and declared as self occupied and you bought a second house purely for investment purpose, you can claim the interest on second housing loan. The amount is unlimited with certain conditions. You can declare the same under interest from home loans and claim and maximize your net take home.
6) 80CCD – Additional tax benefit of Rs 50,000 for NPS
If you are planning for retirement, one of the best way is to invest in NPS. However, there are Tier-1 and Tier-2 accounts. Any investment done in Tier-1 up to Rs 50,000 is eligible for tax deduction u/s 80CCD (1b). The maturity amount is paid only during retirement.
7) Section 80D – Medical insurance upto Rs 30,000
If you have parents who are aged, you might have taken medical insurance for them. You can claim such medical insurance payment up to INR 30,000 of uninsured parents. You should declare such amount at the beginning of the financial year so that your monthly net take home is reflected correctly.
Conclusion: One of the best and practical ways to have correct take home home salary is to declare tax appropriately at the beginning of the year because if one doesn’t declare the planned tax saving, investment and expenses of the year, the projected tax will be higher. Accordingly, the employer would start deducting TDS every month for the first quarter of the financial year. It may happen that when one declares all of his tax saving instruments he has already crossed the deadline. The company may have to cut more TDS than required. So it’s always a smart decision to declare the taxes in the commencement of the year to avoid delays and penalties.
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Possible Ways to Maximize your Net Take Home Salary
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Thank You Suresh these are very useful tips.
Very nice article. Thanks for sharing Suresh.
Your article was very useful for me. I am aged 53 and working in the apex bank. I am having a second housing loan for buying a plot. Some amount is still pending in the first housing loan (3 lacs). Now for me the company is deducting second housing loan, since the interest is high for 2nd housing loan (9%). I have let out my flat purchased in first housing loan. Please clarify me if I show the rental income of the same is beneficial. So far I have not declared the same. My salary crossed 30% bracket. at present I am having 2.3 lac as PF per annum and a HDFC insurance policy for 25000. Please suggest me how I can save Income tax and better option for investment. I am having still 7 more years for retirement.
Hi Ravi, You can make second housing loan as – self occupied and claim interest exemption upto Rs 2 Lakhs per annum. First house you can show as “Second housing loan” and show some income and claim interest (if any). This way you can claim maximum interest
No interest deduction is admissible for purchase of plot.
Only interest on housing loan taken for purchase of house or construction or Repair is eligible for interest and principal repayment benefits
I agree, It is Interest on housing loan and not on plot
Hi Suresh ji,
Wonderful article again.
One thing that you mentioned is that Tier 1 Nps account is eligible for tax deduction.
What about tier 2 Nps account?
If it’s not eligible for tax deduction what is it’s use?
Akshay, Tier-1 account – Eligible for tax deduction, however maturity amount payable only at retirement, Tier-II account – Not eligible for tax deduction, however maturity amount can be withdrawn anytime