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How To Calculate Take-Home Pay in 5 Steps (With Examples)

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How To Calculate Take-Home Pay in 5 Steps (With Examples)

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As a salaried employee, knowing how to calculate your take-home salary is extremely important. This is because the take-home pay is what you have left in your hand to spend during the month. So, it’s essential to understand how to calculate the take-home salary from your CTC or gross pay, as the case may be. 

What is the meaning of take-home pay?

The take-home pay or the take-home salary is that part of your monthly payment (after deducting taxes, other benefits and any voluntary contributions you may be making). In other words, it is the sum you ‘take home’ and can spend/save/invest during the month. 

Naturally, the higher the take-home salary, the better. As it means you will have more money to spend. It improves your liquidity during the month. When negotiating your pay, it is a good idea to ensure that your take-home salary is adequately high. 

Steps to calculate take-home pay

Calculating the take-home pay is easy if you know the formula involved and the steps you have to follow to arrive at this number. 

Take home salary = Gross salary - (Income tax + Professional tax + EPF contribution)

In other words, it is the difference between the gross salary and all the deductions made from that gross pay. Here’s a step-by-step guide to help you compute the take-home pay. 

Step 1: Compute the annual gross salary 

Calculating your annual gross salary is the first step to computing the take-home pay. The annual gross salary is the aggregate amount of money you receive from your company during the year. It is essentially the sum of your basic salary and all the allowances you receive, without accounting for any deductions. 

Step 2: Make a note of the total EPF contribution

Typically, this is 12% of the basic salary plus the dearness allowance. Since this is deducted from your gross salary, it will not be a part of your take-home pay. 

Step 3: Add all the other deductions

  • Professional tax
  • Tax deducted at source (TDS)
  • Any other voluntary contributions

Please note all these metrics and add them to the annual EPF contribution that is deducted from your take-home pay. The sum of all these parameters will be the deductions you need to account for when calculating the take-home pay.

Step 4: Compute the annual take-home salary

To do this, subtract the total deductions from the previous step from your annual gross salary. It will give you a yearly take-home salary.

Step 5: Compute the monthly take-home pay

The last step is to divide the total annual take-home salary by 12. It gives the monthly take-home pay. 

How to calculate the take home salary: An example

This will help you understand the process better. Consider the following parameters:

Particulars

Amount

Gross salary 

₹15,00,000

Annual EPF contribution 

₹72,000

Annual professional tax deduction

₹2,500

Other voluntary deductions from the gross pay

₹10,000

Step 1: Compute the annual gross salary 

In this case: ₹15,00,000.

Step 2: Make a note of the total EPF contribution

Total EPF contribution: ₹72,000. 

Step 3: Add all the other deductions

₹12,500 (i.e. ₹2,500 plus ₹10,000).

Step 4: Compute the annual take-home salary

The annual take-home salary would be the difference between the gross pay and the total deductions. So, it would amount to ₹14,15,500 (i.e. ₹15,00,000 — ₹72,000 — ₹12,500).

Step 5: Compute the monthly take-home pay

The monthly take-home pay would be the annual take-home pay divided by 12: ₹1,17,958 (i.e. ₹14,15,500 divided by 12). 

Conclusion

Getting an idea of your total and monthly take-home pay helps make budgeting and financial planning much more manageable. Now, if you're looking for an excellent place to receive that salary, Fi Money, and its RBI-licensed partner Federal Bank, provide a salary account with many benefits. For starters, you get 10% of your salary as Fi-Coins — every month. Plus 5,000 Fi-Coins as a joining bonus. 

You can redeem these Fi-Coins on an exclusive catalogue of rewards. Other perks include no minimum balance, a free VISA Platinum debit card with zero forex charges, priority customer service & more. That's not all! Fi will also help you manage/grow your money with features like Connected Accounts, Analyser, Goal-based saving, SIPs & automatic payments.

Frequently Asked Questions

How do I calculate my take-home pay from my salary?

To calculate your take-home pay, subtract all the deductions applicable to your gross salary (EPF amount, income tax deductions, professional tax & other voluntary contributions). The amount post-deduction gets paid out to you.

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