What should I do with a salary increase?

Decide before it arrives. A common rule is to invest at least half: you still feel the raise, and your savings rate climbs. Investing ₹10,000 of a ₹20,000 raise at 12% for 15 years grows to about ₹50.5 L.

Why is my in-hand raise smaller than my hike?

Part of a raise goes to tax at your top slab, and part to PF and gratuity. Here a 23.4% hike adds ₹4.2 L a year to CTC, of which ₹79K goes to tax and ₹60.8K to PF and gratuity.

What is lifestyle inflation?

Spending that rises to match each pay rise: a bigger flat, a new car, more eating out. It feels free at the time, but it leaves your savings rate where it was and raises the cost of every future goal.

Should I increase my SIP after a hike?

Yes, if your emergency fund is full and costly debt is cleared. Raising the SIP by part of the raise every year, a step-up, is the simplest way to stop lifestyle inflation taking all of it.

Got a ₹20,000 raise? Spend it, invest it or split it

Invest half of a ₹20,000 monthly raise and it grows to about ₹50 lakh in 15 years at 12%. See where a hike really goes, and the habit that keeps it.

8 Oct 20266 min read

Your appraisal came through, and your take-home pay goes up by ₹20,000 a month. In a year it will probably have disappeared into a bigger rent, a car EMI and more eating out, unless you decide where it goes before it arrives.

Where your raise actually goes

On an ₹18 L CTC in the new tax regime,^[1] a 23.4% hike adds ₹4.2 L a year to your CTC. Not all of it reaches your bank account:

Figure 1 from the Hike calculator

A 23.4% hike on ₹18 L CTC, split three ways

A 23.4% hike: ₹4.2 L more CTC a year₹2.8 L in hand

Take-home₹2.82 L
PF and gratuity₹60,794
Tax₹79,038

How to read it

1₹2.8 L a year reaches you: ₹20,000 more each month, plus a bigger bonus. ₹60.8K goes to PF and gratuity, still yours but later, and ₹79K goes to tax at your top slab.

Open this scenario in the Hike calculator

Spend it, split it, or invest it?

Figure 2 from the SIP calculator

₹20,000 a month for 15 years, three ways

How to read it

1Investing all of it ends with ₹1 Cr. Investing half ends with ₹50.5 L, and you still get ₹10,000 a month more to spend.

Open this scenario in the SIP calculator

Spend all of it: your lifestyle rises to match your pay. That's lifestyle inflation, and it's why many people on much higher salaries save no more than they did years ago.
Invest all of it: fastest, but hard to keep up year after year. A raise you never feel is easy to resent.
Split it: the best of both. Half improves life today, half builds wealth.

The order to put it to work

Emergency fund. Higher pay usually means higher spending, so top the fund up to cover it. See how many months to keep.
Costly debt. Clear credit cards and personal loans before investing. Pay off debt or invest?
Raise your SIP. Start a new SIP for the extra on salary day. What a ₹5,000 SIP increase adds.
Then upgrade, deliberately. Choose the one or two things that matter most to you, rather than letting every expense creep up.

Try it with your numbersSalary Hike

Enter your CTC and hike. See the raise in your monthly take-home, how much goes to tax and PF, and where your pay heads over the years.

What this doesn't mean

Spending isn't wrong. Rent closer to work or better health care can be worth more than the return you give up.
Returns aren't guaranteed. 12% is a long-run equity assumption.
Tax rules change. These numbers follow the current new-regime slabs; check the calculator for the rules it uses.

₹18 L CTC, 50% basic, 10% variable pay, full PF, metro, new regime. Investments at 12% a year, added at the start of each month. For illustration only, not financial advice.

Sources

[1]Union Budget 2025-26: Budget speech (new tax regime slabs, Section 87A rebate) (opens in a new tab)Ministry of Finance, Government of India · 1 Feb 2025