Make more out of your salary!

Make more out of your salary!

Did you know that there is a big gap between what you earn and what your company spends upon you. The difference is usually accounted for by TAX EXPENSE. However, there are a lot of benefits to work around for better returns out of your salary. While most are focused on minimizing your tax obligation, you will discover down the lines that you can actually make MORE out of your salary than what your company has to offer:

1. Invest in retirement funds. The government does not tax you on your retirement funds. In addition to the provident fund that goes into your retirement account, you can contribute up to 33% of your salary without exceeding a total of three lakhs per year, in contribution to your retirement fund. This option is of better value to you if you fall within the 25% tax bracket or above. This effectively increases the amount of money in your account by 24% (1% deducted as tax when you encash your retirement funds) and also allows you handsome interest on the funds. Though you may only withdraw the funds when you retire out of the job, you still can take loans against this fund to cover for some rainy day.

2. Invest in Life Insurance. The government also provides tax rebate on life insurance policies you take. However, tax is waived off on insurance premium of Rs. 20,000 per year. So if you are on a 25% tax bracket here, you end up saving Rs. 5,000 in your tax expense every year. So try contacting your insurance agent and asking for a policy that charges Rs. 20 thousand as premium per year. Different policies from different life insurance companies have varying returns at varying time frames. Do your homework to choose the policy that best meets your needs.

3. Take Loans. Sounds funny, but taking loans effectively increases your income! Of course, it’s a waste if you do not put your loan money to better use. Annual price inflations are at 18% per annum and growing. Just look back a few years and you will realize that a house or a gold/silver ornament or even the latest in electronic gadgets cost much more now than they used to cost a few years ago. Meaning, if you took a loan to buy a piece of land or a gram of gold three years ago, your total loan and the interest amount combined will not be able to buy that one gram of gold today. So, having taken the loan to capitalize on your ‘future income’ today itself, you have effectively accumulated more wealth.

While this is true in present context where expensive loan interest rates are still lower than inflation growth rates, it might not always be the same. However, for as long as inflation rate is higher than the difference between what rates you earn on your savings and what you pay on your loans, and you can afford to timely pay for the loan installments, taking loans for investments always makes you a richer person than one who waited to accumulate his/her savings for it.

4. Take loans to invest in retirement funds. Again a difficult idea to digest, but think about it – especially if you fall within the 25% tax bracket. If you take a loan of Rs. 100,000 and place it into your retirement funds during the fiscal year ends, you receive tax rebates of Rs. 25,000 on it. So your loan of Rs. 100,000 effectively becomes a loan of Rs. 75,000 only on the same day itself. You could further invest that Rs. 25,000 in your retirement funds or use it to settle that loan by Rs. 25,000. Either way, you would have earned yourself a 25% return on the loan right away. However, your benefit here is bound by a maximum of Rs. 300,000 you can put aside for your retirement fund every year. For amounts above that, government does not give you any tax returns and thus does not add to your savings or earnings.

Not only do these instruments add up to your earnings, they also add up to your safety and financial security for the long run. The government has allowed for tax returns on Provident Funds and Life Insurance Policies as a means to encourage public savings and risk hedging through insurance. Good luck with making more money out of the money that your employer spends on you.