Companies pay salaries to their employees in return for the services they provide. Employee salaries include a variety of components such as base wage, allowance, perquisites, and so on. Knowing how to determine your compensation will allow you to make more educated decisions during wage negotiations and work placements. Gross Salary minus Income Tax – Provident Fund – Professional Tax
Components of the salary structure
The salary structure includes the following components:
- Basic salary: The basic salary is an employee’s base income, accounting for 35-50 per cent of the entire salary. It is a fixed sum received before any cutbacks or raises owing to bonuses, overtime, or allowances. This sum is entirely taxable.
- Allowances: An allowance is a stipend paid to employees during their usual job duties. Depending on the type, it may be partially or entirely taxed.
- Dearness Allowance: It is a proportion of an employee’s basic income that is used to offset the effects of inflation. It is exclusively available to public sector employees or retirees.
- House Rent Allowance: This is money given to employees to help them pay for leasing a house. It provides tax benefits to people who pay for their housing every year. Salaried people who live in rental housing can utilise this exemption and lower their tax liability.
- Conveyance Allowance: This is used to reimburse employees for travel expenses to and from their homes and workplace.
- Leave Travel Allowance: This can be exempted from tax. Employers provide it to their employees in order to offset the latter’s travel expenses while on leave. Domestic travel is exclusively covered by the leave travel allowance.
- Medical Allowance: This fixed amount is granted to a company’s employees to cover medical expenses.
- Gratuity: Gratuity is a lump sum reward paid to employees who are leaving the company. It is only available to someone who has worked for the company for 5 years or longer. The gratuity is computed at 4.81 per cent of the basic salary.
- Employee Provident Fund: This is an employee benefit plan in which the company and the employee make monthly investments. It is a savings service that allows workers to invest a part of their paycheck, out of which withdrawals can be received one month after service termination or retirement. At least 12% of each employee’s base salary is automatically taken and deposited into this fund on a monthly basis.
- Professional Tax: The state government levies a professional tax on the revenue produced by salaried workers and professionals. The highest sum payable in a calendar year is Rs 2,500. Companies deduct professional taxes at defined percentages from employee salaries and pay it to the government on their behalf.
What is the difference between CTC and take home salary?
CTC or cost to company is the total salary package and includes any and all benefits (monetary as well as non-monetary) received by an employee. CTC does not include tax deductions.
Take home salary is the salary an employee receives after all tax and other deductions.
Does CTC include PF?
Since CTC is the total of the cost incurred by a company on an employee, it includes PF (provident fund) too.
CTC= Gross Salary + PF + Gratuity
Salary Calculator: Meaning
A salary calculator is a digital tool for salary calculation according to your specific variables. If you would like to see how much you make per hour, daily, monthly, or weekly period. All numbers will be produced in a matter of minutes.
Salary applications are often calibrated to include all local, state, and national taxes. The salary calculator computes net compensation after taxes are deducted. Your working week, days, and months have already been considered in the salary calculator based on local and national standards.
Salary calculators with specialised features are also commercially available for your use. There are many other calculators available, such as take-home pay calculators and income tax calculators.
How to use a Salary Calculator?
It is usually advisable to use a salary calculator specific to the nation from which you are receiving your income.
- Enter your monthly base salary.
- Enter your cost to the company (CTC).
- Indicate if you are working in a metropolis or not. For example, Delhi, Chennai, Mumbai, and Kolkata are commonly regarded as metropolises.
- Enter information about your savings, mortgages, and other investments.
- Enter the data of the benefits you receive in your salary, such as transportation allowance, healthcare benefits, meal vouchers, Provident Fund, Leave Travel Allowance, etc.
- When you select ‘Calculate’, your taxable income, House Rent Allowance, and annual income are calculated for the current fiscal year.
Working of a Salary Calculator
A salary calculator computes your gross pay.
Gross Salary = Company Cost (CTC) – Employer Contributions (Provident Fund and Gratuity Amount)
It then calculates your taxable income.
Taxable Income = Gross Salary – Employee Provident Fund Contribution – Allowance for conveyance – Allowance for house rent – Allowance for leave travel -Medical insurance – investments that save taxes – any other deductions
The salary calculator tool then calculates the income tax by applying recent income tax laws, regulations, slabs, and percentages.
Following that, the Salary Calculator tool computes the take-home pay.
Take-home pay = Gross Salary minus Income Tax – Provident Fund – Professional Tax
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