Logicmojo - Updated Sept 18, 2021
Introduction
In any professional setting, an employer pays employees a predetermined sum for their services at the end of each month. Salary is the conventional name for this payment. Usually, this sum is specified in the employee's contract and pay stub. Each of the numerous components of the pay can differ between employers. An employee must pay taxes on salary because it is a part of their yearly revenue. As a result, the amount a company pays an employee differs from the amount that employee really receives or keeps for themselves.
What is Salary Calculator ?
There are two key parts to your salary slip. Income or earnings is one section. Deductions make up the second section.
Basic wage, Home Rent Allowance (HRA), Special/Other Allowances, etc. are all included in income or earnings. This section also includes other elements like Performance Bonuses, Variable Pay, and Reimbursements.
The second part, or deductions, covers things like gratuities, professional taxes, employer and employee PF (Provident Fund) contributions, etc.
A salaried individual may feel intimidated and overburdened by all these details while trying to estimate their take-home pay.
The pay calculator would come in handy in this situation. You will need to provide your CTC and a few other simple facts. Also, it assists you in determining the in-hand or take home salary.
Various Salary Elements
1. Basic Salary
The basic wage is close to 40–50% of the CTC. The base salary is the sum on which all subsequent additions and deductions are based.
2. Special Compensation
The special compensation is the extra money given to employees to cover various costs, such as clothing, food, academic expenditures, internet subscriptions, phones, books, and stationery. Every employer has a different special allowance, and employees are completely taxed on it.
3. House Rent Allowance
Employees who need help paying their rent can receive a house rent allowance from their company. In the event that employees do not reside in rented housing, HRA is completely taxable in the employee's hands.
4. Leave travel Allowance (LTA)
The Leave Travel Allowance (LTA), as its name suggests, is a benefit provided to employees to pay for travel costs while they are on leave. It covers the costs of taking the train, bus, or aeroplane whether you're travelling with or without family.
5. Bonus
An additional payment called a bonus is connected to the worker's performance. It is often received at the end of the year and is completely taxable to the employees.
6. Employee Provident Fund (EPF)
Employee Provident Fund, sometimes known as EPF, is a savings programme that is overseen by the national government. EPF's main goal is to give workers enough money for retirement. According to this plan, an employee's basic income is contributed to the provident fund at a rate of around 12%. Also, the employer will match the same contribution. The provident fund is now offering a return of 8.1%. This rate is determined by the government every year, therefore it is constantly changing.
7. Professional Tax
Employee Provident Fund, sometimes known as EPF, is a savings programme that is overseen by the national government. EPF's main goal is to give workers enough money for retirement. According to this plan, an employee's basic income is contributed to the provident fund at a rate of around 12%. Also, the employer will match the same contribution. The provident fund is now offering a return of 8.1%. This rate is determined by the government every year, therefore it is constantly changing.
8. Gratuity
Employee Provident Fund, sometimes known as EPF, is a savings programme that is overseen by the national government. EPF's main goal is to give workers enough money for retirement. According to this plan, an employee's basic income is contributed to the provident fund at a rate of around 12%. Also, the employer will match the same contribution. The provident fund is now offering a return of 8.1%. This rate is determined by the government every year, therefore it is constantly changing.
Gross Salary Versus CTC
The distinction between gross salary and CTC is often unclear. Some of them believe the two are interchangeable. That is not the case, though.
Your gross salary is the amount you are paid after taxes but before deducting your PF contributions and gratuities. The total cost of the business, or CTC, includes basic pay as well as various direct and indirect benefits.
How do salary calculators function?
A basic salary calculator uses a formula to calculate pay based on factors like CTC (Cost to Company), bonuses, and other information. The salary calculator discusses various deductions, including those for professional taxes, insurance, and employee provident funds, as well as how to calculate take-home pay. This can be used to compute both the In-Hand Salary and the components of CTC. The total deductions and CTC are used by the take-home salary calculator to calculate the take-home pay. To determine the employee's take-home pay, all deductions are removed from the CTC. As an illustration, the employee's net take-home pay would be as follows if the CTC was Rs. 900,000, the monthly PF contribution was Rs. 2,250, and the monthly professional tax was Rs. 500:
CTC Rs.9,00,000
Annual PF contribution (2,250 x 12) Rs.27,000
Annual tax (500 x 12) Rs.6,000
Annual net take-home salary Rs.867,000
Monthly net take-home salary Rs. 72,250
Salary Calculation Formula
Consider using various formulae to determine the components of a salary.Because compensation calculations involve a lot of factors. Then you can figure out your In hand salary.Here are some fundamental formulas:
Gross salary = CTC - (EPF + Gratuity)
Gratuity = n*b*15 / 26,
where n = tenure of service completed in the company, b = last drawn basic salary + dearness allowance
In hand salary = Gross salary - (Income tax + professional tax + EPF contribution)
Benefits of Using Salary Calculator
1.The online salary calculator is quick and easy to use. You may find out your take-home pay by following these 5 easy steps.
2.Because spending is a direct function of income, you can forecast your future expenses by calculating your take-home pay or net wage.
3.On the basis of your current wage, you can calculate your net monthly savings.
4.Also, it enables you to choose the best investment possibilities for your portfolio.
Conclusion
Each employee must be aware of the specifics of their job, including the CTC and the In-Hand wage they will be paid. They should thoroughly study the offer or CTC letter. Also, understanding the various CTC components is crucial. A clear knowledge will enable them to decide whether they wish to accept/continue the work and about their compensation package. We hope this article provided you with the necessary details regarding the CTC components, the definition of "salary in hand," how it is calculated, and an example.