Financial tips to increase your take-home salary

When you first enter the world as a professional, your salary getting credited to your account gives you a sense of achievement. And it is! Except when you realise that your salary and the actual amount you take home are very different. This is because the salary that actually gets credited to your account is the net amount after tax deductions, benefits, provident fund etc. As a law-abiding citizen, you are more than happy to pay taxes, but to cater to the modern day needs of the millennial cohort, you would also need a larger disposable income. 

Recent surveys have shown that while a competitive salary is everyone’s preference, millennials know what they expect from their employers: 96% of young professionals think a competitive pay and bonus system is important. Clearly, young professionals give a lot of importance to their incentives.

So the question is: how do we maximise the in-hand salary? To understand, let us break this down: if the take home salary has to be maximised, then the tax deductions from your salary have to be minimised. This can be achieved through a variety of ways. 

Let us look at some of the popular tax-saving provisions.  

•  Save tax of up to INR 1,50,000 for every person insured 

Under Section 80C of the Income Tax law, you can claim a deduction of up to Rs. 1.5 lakhs from your gross total income. The only requirement is that you are directing this money to certain investments and payments. The most popular mode of making this investment is by getting a life insurance policy. The premiums you pay on life insurance plans not only help you save on the tax deductions from your gross income but also secure you and your loved ones.   

• Claim tax deductions as an HUF with a separate PAN

If you are a Hindu, Sikh, Jain or Buddhist you can increase your take home salary by saving additional tax through an HUF account. An HUF or an Hindu Undivided Family has an identity separate from its existing members belonging to the same lineage.  Now you might be wondering, how?

Well, just like you enjoy certain deductions as an individual taxpayer, the HUF also enjoys its own tax deductions under section 80C of the Income Tax Act. This simply means that, as long as the HUF is formed legally and has a separate PAN card, you can also claim tax benefits as a part of the HUF. Here’s an example: if an HUF pays the life insurance premium for individual members, the maximum amount that can be saved is Rs 1.5 lakhs. This savings will be in addition to the tax you save as an individual. HUF also addresses the problem of having to pay taxes on the notional rent on any additional properties you might own. How? HUF is allowed to own a residential house without having to pay tax on the same. Interesting, isn’t it?

• Claim tax deduction by opting for the critical illness rider 

In this day and age with the compulsions of a working professional’s lifestyle, it is becoming essential to get covered under a critical illness rider that covers new-age health problems found among young professionals.

Your life insurance policy exists to secure you from any unforeseen and unpredictable circumstances. We can all agree that a diagnosis of a critical illness is one such event. When struck unexpectedly, it can become a huge financial burden. Therefore, it is wise to have a critical illness rider in your term insurance plan. A plan like ICICI Pru iProtect Smart will give you a claim payout on just diagnosis of 34 critical illnesses. It is an optional rider, but can be a huge relief to meet the rising medical expenses. 

Having established that the critical illness rider is a blessing for your financial health, it also brings tax benefits. Under Section 80D, you can avail tax benefits on the premiums paid towards critical illness benefit offered by term insurance plans. A tax deduction of up to Rs 25,000 every year can be achieved for the premiums paid towards your critical illness rider. 

• Make the smart decision of filing taxes separately if you are married and enjoy additional  tax deductions  

As a young married couple, you are already in the process of planning your future together and a proper financial plan in place helps you have a very fulfilling life. The decision of handling finances and sharing expenses shouldn’t be yours alone. But it’s worth noting that certain tax provisions might work in your favour if you operate individually. 

Here’s how it works: if only one spouse invests up to Rs 1.5 lakh in the investment options available for tax deductions under Section 80C then the tax benefits available will peak at Rs 46,800. On the other hand if both the partners invest up to this maximum limit, you get the scope to save on taxes by availing a total tax benefit of Rs 93,600. The best advice, therefore, is to invest in a term life insurance plan like the ICICI Pru iProtect Smart which comes with affordable premiums and the provision of a longer life cover of up to 99 years of age. As mentioned before, the plan serves you tax benefits in multiple ways: first of all, premiums paid are tax-free under section 80C and when you opt for Critical Illness benefit you can get additional tax benefit under section 80D. This ensures that as a couple you have more disposable income to spend and a secure future to enjoy.

Conclusion:

When you work so hard for the salary you make, it is only practical that you are able to avail the option of saving as much of that salary as your take-home amount. Investing in a term insurance plan that also offers critical illness benefits is a very simple but powerful way to enjoy tax deductions. Start early and find yourself a suitable life insurance plan to enjoy not just the tax benefits but also a secure future.