How To Maximise Your Take-Home Pay

By | August 17, 2016

How to Maximise Your Take-Home Pay

What’s that one message that makes you extremely gleeful at the beginning of the month? The message of your salary getting credited into your account, right? Can you think of a text message better than this? Something that can make you even happier? Can’t think of anything? Like always, we have the answer!

Receiving that same salary message with just one change—a better salary figure! You don’t necessarily need to get promoted to receive better pay, there are other ways of maximising your take-home pay.

Before we get started with the ways to maximise your take-home pay, there are a couple of terms you must know about. Since most of us often tend to get confused with all these salary-related terms, it’s better to understand them and the crucial differences between them. After all it’s your hard-earned money we’re talking about!

Cost to Company (CTC)

The total cost that a company incurs on its employee is Cost to Company. It includes the cumulative of various allowances that are added to the basic salary like food coupons, cab service, House Rent Allowance (HRA), etc.

CTC= Direct Benefits + Indirect Benefits + Savings Contributions

In case you’re not sure about the components of each of these, here you go:

Direct Benefits Indirect Benefits Savings Contributions
Basic salary Food coupons/Subsidised meals Gratuity
House Rent Allowance Interest-free loans Superannuation benefits
Vehicle allowance Income Tax savings Employer Provident Fund (EPF)
Conveyance allowance  Medical & Life Insurance premiums paid by the employer
Leave Travel Allowance (LTA) Company leased accommodation
Incentives/ Bonuses
Mobile allowance
Medical allowance

Employee Provident Fund (EPF)

The employer is supposed to contribute at least 12 percent of an employee’s salary towards their EPF. You get to withdraw your EPF at the time of retirement or in one of the following situations:

  • Retirement due to permanent disability
  • Termination of services
  • Migration for taking employee abroad
  • Education of self or children
  • Medical expenditure

Additional Reading: How To Check Your EPF Balance


Your gratuity is a part of your salary that’s paid by the employer as a token of gratitude for your services during the employment period. Wait, wait! Before you start jumping with joy, this gratuity is given to employees who complete 5 years of service with the company. To avail this, you need to hold on to your job for at least 5 years.

Gross Salary

It’s what you get after subtracting Employee Provident Fund and gratuity from the CTC.

Take-home pay

The final amount you receive every month after making some deductions, like employment taxes, retirement contributions and other necessary taxes, is your take-home pay.

Take-home pay= Direct benefits (-) Income tax (-) EPF (-) Other deductions

Now that you have a better idea about all these salary-related terms and how they’re different from each other, here are ways to maximize your take-home pay:

  • Do the math right

Before starting to calculate your current take-home pay and other taxes, you need to get an exact idea about your total monthly income. If you have more than one salary source, for instance, if you freelance part-time, you need to take that amount into consideration as well. If you are getting rent, add the monthly rent you receive to your monthly earnings. If it’s appraisal time, and you’re expecting a hike, you need to take that into account as well. What you don’t need to include here is income for which TDS has already been deducted.

Go step-by-step. Start by calculating your gross income and deduct HRA, EPF, LTA, medical reimbursements, telephone bills, etc. Now that you have your taxable income, take all the contributions you’ve made towards tax-saving in the previous year into account. These include tuition fees for your children, PPF contribution, insurance premiums, ELSS, etc. The amount you have now is what you’ve to pay tax for.

If you have made the right investments and declared them to your employer, you will end up paying less as TDS and have a little bit more money in your bank account when pay day comes around.

We know it’s slightly complicated, but you need to put in some effort for more money, right?

  • Revise your investments

When you make your investment declarations to your employer, it is only an indication of where you intend to invest for that financial year. The reality could be a little different. Later in the year, you may change your mind and decide to invest in something else as well. For such situations, it’s essential to revise your investment declaration as and when you make the investments. In case you don’t have certain essential supporting documents at a given point of time, like the PAN card of your landlord before making an HRA claim, remember to submit them as and when you receive them. It’s essential to declare the changes in your investments. Why? In case you’ve discontinued any tax plan or taken a new one, it needs to reflect in your deductions.  Also, if you don’t have investment proofs, you’ll ultimately end up paying TDS and this will reflect in your salary.

  • Medical reimbursement

Did you think that all those medical bills are just a waste of paper? Nope! Submitting all your medical bills can earn you a tax exemption up to Rs. 15,000 per year. Medical allowance is generally a part of your salary breakup (just check with your employeer to be sure). So, before declaring all those bills a waste, stop and save them! Saving them can save you money!

  • Food coupons/food cards

Food coupons and cards can earn you a tax exemption as well. They are exempt up to Rs. 50 per meal per day, which amounts to at least Rs. 2,500, if you work 5 days in a week. Your tax benefits get calculated on the basis of the tax slab you fall under. That’s a good deal, right?

  • The LTA component

LTA is usually a part of your salary (again, you need to check prior to joining a new company). LTA basically stands for cost of travel that’s granted to an employee, while travelling anywhere in India, on leave from work. The exemption amount depends on the mode of travel and doesn’t include the charges incurred for boarding and lodging, sightseeing and entertainment. The only other limitation to this component is that it can be claimed only once in two years. So, next time you plan a family vacation, within the country, give the LTA component a thought. It can reduce some burden of that grand vacation for you.

  • House Rent Allowance (HRA)

If you’re put up in a rented accommodation, you need to work your salary in such a way that it covers your entire rent and gets you a tax exemption.

Now that you have a few pointers, you’re all set to maximize your take-home pay. If you need more assistance with anything related to money management, we’re here to help!

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