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How to negotiate salary during job interview and not let taxes eat into your take home pay

 

Synopsis

When you have multiple fronts to negotiate on, like salary, designation, bonus, perks or reimbursements, begin discussions in parallel so that the employer gets the complete picture instead of assuming that you are interested only in one thing.


The first rule is to not tell the employer the salary that you want. Delay this discussion for as long as you can. When you are asked for a target salary, deflect the question by sharing that you prioritise a meatier role over salary. If the interviewer presses, say that you are looking at a fair offer. Thereafter say that the company is in a better position than you to evaluate the value that you bring. Once the employer mentions his first offer, you can close the discussion if you are happy or continue working towards a higher number.

Use pauses for advantage
When the other person tables the first offer, respond with a pause. While you buy time to think, the other person is under pressure to explain the reason for the offer or say something better. This tells what is important to them and what you can focus on. A delayed response usually translates into a higher offer.

Look at full package
Be flexible about how much cash you can earn versus the other benefits available. Always ask about the perks that the employer is willing to give with the job. Group health insurance is now critical. Find out if it will cover your parents as well.

Persistence
Never give up in a negotiation. If you are told that this is the maximum basic salary for the role, ask for a sign-on bonus and an increment after six months instead of a year. Push back against a ‘No’ but each time explain your reasons for a hike. If a discussion closes without a conclusion, reconnect in two days to take it forward. This could earn you flexible working hours, health insurance for parents or better variable bonus.

Closing tactics
When you have multiple fronts to negotiate on, like salary, designation, bonus, perks or reimbursements, begin discussions in parallel so that the employer gets the complete picture instead of assuming that you are interested only in one thing. Always start with a number higher than what you want in order to have space to concede later.
Don’t be in a hurry
Never accept or reject an offer immediately. The former leaves money on the table that you could have received, while the latter makes you miss extra perks which could make the offer worthwhile. Also, always get an offer in writing. No reasonable employer will deny your request for a written offer. In case they refuse, ask other employees in the firm about standard practices or reconsider your risks.

Don’t let tax eat into your income
You may have been offered an attractive compensation package, but the take home pay will get pared by deductions and taxes. Sudhir Kaushik of Taxspanner looks at the break-up of a Rs 12 lakh package and how one can minimise the reduction.

Candidates who get job offers are understandably very elated when they get their appointment letters. But this joy often turns into consternation when they get their first paycheque. The net amount is usually much lower than what they expected. Deductions and taxes can reduce a compensation package of Rs 1 lakh a month by 28%.

Many of the components of the package will not be paid to you every month. The cost of medical and life insurance is not paid to you. You will also not get the company's contribution to the Provident Fund or the gratuity amount. In fact, your own contribution to the Provident Fund (12% of basic salary) will be deducted from your pay and deposited in your account. If bonus is paid out annually, this sum will also not reach your bank every month.
A big deduction will be tax. One can claim tax exemption for the house rent allowance (HRA) if living on rent. Individuals can also reduce their taxable income by Rs 1.5 lakh by investing under Section 80C. But new earners don't know the rules and have no taxsaving investments, so their companies tax the HRA and only take into account the Provident Fund contribution while calculating their tax liability.

In the examples given below, employee A doesn't pay rent so his HRA is taxed. Employee B claims HRA exemption but doesn't save under Sec 80C. Employee C optimises his tax by claiming HRA exemption as well as claiming Rs 1.5 lakh deduction under Sec 80C and Rs 50,000 deduction by contributing to the NPS.

But this is not what the individual will get every month. Deductions and tax will reduce the net take home pay. However, the impact of tax can be reduced with savvy planning.
Most companies explain the CTC structure, which is the total expense incurred on an employee in a year. The salary is a major (but not the only) component of this amount. But in their excitement of bagging a job, new recruits don't examine the offer letter in detail.
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