It may be a cakewalk for some working professionals, but many of us still need help calculating our per month salary! The dizzying array of complicated terms, tax implications, and several payslip components usually stump us.
Basic pay is the most important part of your salary. Other salary components such as HRA, PF, etc. are calculated as a percentage of your basic pay. Companies limit the basic pay to 40-50% of your CTC to reduce the tax liability because the entire amount is taxable.
Employers offer various allowances as part of the CTC, including those derived from basic salary and those assigned independently. Some allowances, such as HRA and LTA, also offer tax exemptions and can reduce your net tax payable amount. While there is no fixed rule for assigning allowance heads, the following are common.
Companies offer annual or bi-annual/quarterly incentives to incentivize employee performance. These incentives are based on individual performance and compensation structure and are part of the annual CTC.
Employers may offer indirect benefits such as health insurance, meal vouchers, and digital subscriptions, in addition to direct payments in your salary account. These benefits are usually not included in the net take-home salary, but are a part of your CTC and gross salary.
Some salary components are not paid to you, such as income tax, professional tax, and contributions to your retirement in the form of an Employee Provident Fund and gratuity. These deductions are calculated based on your overall CTC, the company’s exempted allowances, and your individual tax-saving instruments. Although you receive these funds only upon retirement or leaving the job, they are still part of your CTC.
While the concept is simple, calculating the actual per month salary may be challenging due to a complicated salary structure, variable allowances, company payout policies, and tax liability. Once you've figured things out, you'll need to stash it somewhere secure yet easily accessible!
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You can calculate gross salary by adding all the components that are paid to you. These include basic pay, allowances (such as HRA, LTA, conveyance allowance, medical allowance, etc.), direct benefits (such as bonuses), and indirect benefits (such as insurance and meal vouchers). Remember to discount the contributions to EPF, gratuity, and taxes. Online salary calculators are a great tool to do this instantly with minimal manual effort.
It's your gross salary minus the taxes deducted per your liability. The tax is usually calculated per the annual income and discounts your voluntary investments applicable for an exemption. However, employers deduct TDS monthly by calculating your yearly tax payable and dividing it by 12.
