Understanding salary breakdown,
salary structure and salary components! Terms like CTC, basic
salary, total
salary, allowance, remuneration, tax deduction, provident fund, and insurance
often lead to
confusion for employees. In this article, we have tried to
explain all the salary-related terms to make
the salary easier for you.
CTC
CTC or Cost to Company means that a
company spends (directly or indirectly) on an employee. It refers to the
employee’s total salary package. CTC includes monthly salary such as basic
salary, various allowances, reimbursement etc. and annual components like
gratuity, annual variable salary, annual bonus.
CTC is not equal to the salary an
employee has to take home. There are many factors in the CTC that are not
accepted as part of the housing wage.
CTC = Total Salary + PF + Gratuity
Let us now discuss the common pay components:
You may also, like - Automated Income Tax Revised Form 16 Part B for the F.Y.2020-21 [This Excel Utility can
prepare One by One Form 16 Part B]
Base salary
Starting salary is a person's basic
income. This is a specific part of one's compensation package.
The starting salary also depends on
the surname of the employee and the industry in which the employee works.
Full pay
Before taxes and other deductions,
the total salary is calculated by adding one’s basic salary and allowances.
These amounts include bonus, overtime pay, leave pay and other differences.
Total Salary = Basic Payment + HRA
+ Other Allowances
Net salary or sitting salary
Net payment or take-home payment is
received after deducting income tax (TDS) and other deductions as per the
policy of the concerned company.
Net Salary = Basic Salary + HRA +
Allowance - Income Tax - Employees Provident Fund - Professional Tax
Allowance
The total allowance received by the
employee to meet service needs. In addition to the basic salary, allowances are
provided and vary from company to company. Some common types of allowances are
discussed below:
HRA or Housing Rent Allowance: This
is the amount that companies pay to employees for rent or housing expenses.
Travel Allowance (LTA): The amount
of LTA an employee pays to a company to reduce internal travel costs. It does
not include travel, food, accommodation, etc.
Vehicle Allowance: This allowance
is given to cover the travel expenses from the accommodation of the employees
to the office.
Added Value Added Allowance:
Employees are given a living allowance to deal with the effects of inflation.
This only applies to government employees, public sector employees and
pensioners.
You may also, like - Automated Income Tax Revised Form 16 Part B for the F.Y.2020-21 [This Excel Utility can prepare at a time 50 Employees Form
16 Part B]
Other such allowances are special
allowances, medical allowances, incentives, etc.
Revenge
Sometimes, employees are entitled
to various payments such as medical treatment, phone bills, newspaper bills. In
general, each category has a high level of revenge.
Employees' Provident Fund / EPF or
Provident Fund
The Provident Fund is a monthly
investment for both employer and employee that serves as a single employee
retirement benefit plan.
Provident fund assistance is
mandatory for the following two:
Case 1: Basic Salary <15000>
15000 (per month)
In this case, the company is likely
to offer 12% of the 15,000 (i.e. 1800) or 12% of the basic salary.
It is credited directly to the
employee’s PF account. You can see your balance here.
Thus, 12% of the starting salary is
paid by the employee and the remaining 12% is paid by the employer. Generally,
the employer's contribution will only appear on your offer letter and not on
the payslip. The contribution that comes from your salary is called the EPF and
it appears in the payment. Contribution to the Provident Fund is mandatory for
Indian companies.
Public Provident Fund or PPF
PPF is the voluntary contribution
of the employee and is fully controlled by him. The owner has nothing to do
with the PPF account.
This amount is not specified in CTC
or Papal, however, if an employee presents it as an investment for tax saving
purposes it will appear on Form 16.
You may also, like: - Automated Income Tax Revised Form 16 Part B for the F.Y.2020-21 [This Excel Utility can prepare at a time 100 Employees
Form 16 Part B]
People open a PPF account for two
main reasons - one for tax savings and the other for long-term investment. PPF
offers. 6% per annum (synthesized annually) and most importantly, both
contributions and maturity amounts are tax-free.
Do not confuse this with the
owner’s PF cooperation.
Life insurance and health insurance
Most companies offer health
insurance and life insurance to their employees, for which the employer pays
and is included in the CTC. So you have to subtract it when calculating your
house salary.
Let’s understand income tax and it
relates to salary income and salary components.
Income tax
The tax levied on one's personal
income is called income tax. Normally, the employer gets his salary from the
employee after-tax deduction. This process is called TDS exemption. The amount
deducted is paid by the government
The standard deduction of Rs 50,000/-
You may also, like: - Fully Automated Income Tax Arrears Salary Relief Calculator U/s 89(1) with Form 10E for the F.Y.2020-21
