Regardless of whether you are a veteran in the Indian job market or fresh out of college, it is essential for salaried people in India need to understand how to calculate basic salary. Knowing how the basic salary gets calculated helps you appreciate your pay structure better and will make it easier to negotiate your salary to your advantage.
Learning how to compute the basic salary can be intimidating for the uninitiated. But the good news is that it is relatively simple, especially if you look at how to calculate the basic salary as a percentage of the CTC.
Basic salary or basic pay is the primary component of your salary. It is the base sum your employer pays you and is fixed upfront. The basic salary does not include any of the different allowances and other components that typically form a part of the gross salary, such as:
To better understand how the basic salary pertains to the overall salary paid to an employee, let’s take a closer look at the different components of a typical salary structure.
This is the base pay you receive from your employer, and it is generally around 50% of your CTC or 40% of your gross pay.
The DA is an allowance that covers the increasing cost of living, and it is generally paid out to government employees as a percentage of the basic salary.
The HRA is an allowance that helps cover the cost of rental accommodation.
Some employers may pay out special allowances to cover expenses like entertainment, internet, phone recharge, and the like.
This allowance is paid by employers to cover the costs of domestic travel for the employee and their family.
Bonus: This is a kind of incentive that is paid to an employee over and above the basic salary. It is linked to the employee’s performance at work.
This kind of tax is levied by state governments and is deducted from the total salary.
This is the contribution made by the employee and the employer to the employee's provident fund account.
Now that you know what the different components of the salary structure are, let’s see how you can calculate the basic pay from the gross salary. The basic salary formula shown below is relevant here.
Basic salary = Gross salary – (DA + HRA + conveyance + other allowances)
Here’s an example to elaborate how this formula works. Consider the following parameters in an employee’s pay structure.
In this case, the basic pay will be computed as follows.
Basic pay:
= ₹50,000 – (2,000 + 2,000 + 1,000 + 1,000 + 3,000)
= ₹41,000
Another way to compute the basic salary is as a percentage of the CTC. This method works if you do not have the breakup for the different components of your salary, or if you want an easier way to compute the basic pay.
Basic salary = CTC x Percentage applicable thereon
For instance, say your employment contract mentions that your CTC will be ₹40 lakhs per annum and that your basic pay will be 50% of your CTC. In that case, your basic pay will effectively be ₹20 lakhs per annum or ₹1.67 lakhs per month.
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There are many ways to calculate the basic salary. If you're wondering how to calculate the basic salary as a percentage of the CTC, here's the formula:
Basic salary = CTC or gross pay X The applicable percentage
Here's how the basic salary gets calculated from parameters like gross pay and allowances:
Basic salary = Gross pay- total allowances (medical insurance, HRA, DA, conveyance, etc.)
Basic salary is the primary component of your total salary. It is the base pay that your employer pays out to you each month, and it is fixed and not subject to change every month. To calculate it, you either need to know the percentage of your CTC that the basic salary makes up, or you need to know your gross salary and the total allowance sum. You can use a relevant formula to compute the basic salary depending on these parameters.
The formula to calculate basic salary is - Basic salary = CTC x Percentage applicable thereon
Base salary is the base pay you receive from your employer, and it is generally around 50% of your CTC or 40% of your gross pay
