In every professional field, employees get paid at the end of the month by their employers. This payment is called the salary. The amount they receive is usually mentioned in their contract as well as the pay slip.
The salary has many components that may vary among different employers. Below is a list of the most common breakdown of the salary structure.
1. Basic salary
It is a part of the Cost to Company (CTC) that the employers pay to the employees for their services. The basic salary is generally around 40% to 50% of your total salary. There is no formula to calculate this amount. It depends on factors like the industry, employee designation, and much more.
2. House Rent Allowance (HRA)
Companies pay the HRA to employees who stay in a rented property. The HRA amount equals 50% of the basic salary if you live in metro cities. For the non-metro cities, the amount is 40% of your basic salary.
Section 10(13A) of the Income Tax Act, 1961 makes the HRA partially or fully tax exemptible. But, if you do not stay in a rented property, the entire component is taxable.
3. Leave Travel Allowance (LTA)
Employers pay this benefit for you and your family’s domestic travel expenses during a holiday. The allowance only covers railway ticket prices and airfares. Section 10(5) of the Income Tax Act, 1961 offers tax exemption on the LTA amount for up to two holidays in a four-calendar-year block. You need to submit proof of travel to receive the tax benefit.
4. Special Allowance
This is a fixed amount your employer may pay above your basic salary. The Special Allowance varies among companies as it depends on multiple factors. Moreover, it is fully taxable.
Bonus is a component of the gross salary that the employers may pay as a performance encouragement. The entire bonus amount is fully taxable.
6. Employee Provident Fund (EPF)
It is generally a mandatory savings scheme. You need to pay 12% of your basic salary as an EPF contribution. Moreover, your employer matches your contribution and invests the same amount in your EPF account. Your contribution is tax-deductible up to ₹1.5 lakhs under Section 80C of the Income Tax Act, 1961.
The employer’s contribution to EPF is a part of the CTC, and it does not appear on the salary slip.
7. Professional tax
It is a mandatory tax you need to pay to the state government. However, the professional tax amount cannot be more than ₹2,500 in a financial year.
If the breakdown seems complicated, you are not alone. Calculating the salary can be tricky because it entails several aspects. To save time and effort, most people use the salary calculator in India. The tool can make the process easy for you; read on to know more.
What is a salary calculator?
A take-home salary calculator is an automated tool that helps you figure out your net salary after taxation. It also considers all the bonuses and deductions applicable. You must provide the gross salary and total bonus.
The calculator will then determine the CTC and show you the amounts of basic salary, HRA, other allowances, deductions for provident fund and professional tax, total deduction, net salary, income tax, and net salary after income tax deduction.
Salary calculation formula
As the salary calculations involve various components, you need to use different formulas to calculate each aspect. Only then you can estimate your take-home salary. Here are some important formulas you must know.
- Gross salary: CTC - EPF - Gratuity
- Gratuity: (Basic salary + Dearness allowance) × 15/26 × Number of years you have worked for the company
- Taxable income: Gross Salary - EPF/PPF Contribution – Tax-free Allowance - HRA – LTA – Health Insurance – Tax-saving Investments - Other Deductions
- Net Salary Post Taxation/Take-home Salary: Gross Salary - Income Tax - EPF Contribution - Professional Tax
How to use the salary calculator
The process to use the salary calculator is quick and simple. Follow the three steps given below:
- Choose if you want to calculate monthly or yearly salary.
- Enter the gross salary and total bonus amount to determine Cost to Company (CTC).
- Input the basic salary percentage of the CTC.
The calculator may consider the basic salary as 50% of the CTC by default. You may change it as per your need.
Once you enter the required details, the calculator will instantly provide the following information.
- Basic Salary
- Other Allowances
- Provident Fund
- Professional Tax
- Total Deductions
- Net Salary
- Income Tax
- Net Salary Post Tax
How to calculate monthly take-home salary
Your monthly take-home salary is the amount that remains after subtracting the total deductions from gross pay. Let us understand the calculations using examples. Suppose your yearly CTC is ₹10 lakhs, and the company pays you ₹50,000 per year as a bonus. So, your total gross salary will be CTC – bonus = ₹10 lakhs - ₹50,000 = ₹9.50 lakhs.
Thereafter, you need to deduct the yearly professional tax from the gross salary. The tax amount varies from state to state. For this example, we will assume it is ₹2,500 in your location.
Next, you must deduct the total EPF contributions by you and your company. The employer always matches the EPF contribution of the employee. So, the amount will be the same. Your EPF investment will be 12% of the maximum monthly salary limit of ₹15,000 = ₹1,800 a month. So, your annual contribution to EPF will be ₹21,600. Your employer’s contribution will be ₹21,600, too.
Let us assume you also have a deduction of ₹3,000 per year towards employee insurance.
So, your total deduction = professional tax + your contribution to EPF + the company’s contribution to EPF + employee insurance = ₹2,500 + ₹21,600 + ₹21,600 + ₹3,000 = ₹48,700.
Your total yearly take-home salary = gross salary – total deductions = ₹9.50 lakhs - ₹48,700 = ₹9,01,300.
Now, your monthly take-home salary = annual salary/12 = ₹9,01,300/12 = ₹75,108.
To do away with the tedious calculations, most people prefer the take-home salary calculator in India. If you use the tool, it will determine the amounts from the above calculations and show you the numbers within seconds.
Difference between CTC and gross salary
Cost To Company, commonly referred to as CTC, is the total cost companies spend for hiring and retaining employees. CTC includes your salary along with all the other benefits the employer pays, including EPF, HRA, medical insurance, and other allowances. CTC may also include cab service, subsidized loans, food coupons, and much more.
So, CTC is the total expense of your employer for sustaining your services. The amount varies among companies, based on the number of benefits. Moreover, your take-home salary depends on the CTC.
On the other hand, the gross salary is the amount that remains after subtracting gratuity and EPF from the CTC. The gross salary is always higher than your take-home salary as the amount is calculated before deductions such as EPF contribution, taxes, and others.
It includes holiday bonuses, overtime pay, and any other additional amount offered by the employer.
To determine your gross salary, you must know the gratuity and EPF amounts.
- Gratuity: Section 10 (10) of the Income Tax Act, 1961 mandates that an employee is entitled to receive the gratuity if he or she completes at least five years in a company. Your employer will pay the gratuity amount at the end of your employment tenure. Apart from retirement, you will get the gratuity amount when leaving the company to seek employment elsewhere.
- EPF: The Ministry of Labor mandates this benefit. You must contribute a minimum of 12% of your salary to the EPF. Your employer also contributes the same amount to the EPF account. You may withdraw the entire accumulated amount at the time of retirement.
FAQs related to salary calculator
1. What do I need to know to use the salary calculator?
You should only know your gross salary and total bonus. Once you provide the data, the calculator will show the other relevant salary components in no time.
2. How does the calculator determine the basic pay?
It calculates the basic salary as a percentage of the CTC. You may change the percentage based on your requirements.
3. Can I find the TDS on the salary calculator?
You cannot find the TDS on the salary calculator separately. You can easily find the TDS amount on your salary slip.
4. Does the salary calculator show the deductions?
Yes, the calculator shows the professional tax and provident fund deductions. It also reflects the total deductions.
The in-hand salary calculator is a free tool that you can use anytime. Its powerful mechanism offers you the required data in a jiffy and without any errors. When using the calculator, be careful about providing the correct amounts required to get accurate results.
In this article