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Salary is certainly the most important part of your career graph, as it tells the world about your job profile, growth, position and achievements in the firm you are working for. The salary is generally divided into three parts, that is, Basic Salary, Net Salary and Gross Salary.
Before we calculate your salary, let’s find out what the above-mentioned terms mean?
Basic Salary of an individual is the salary amount that paid to an employee by an employer. It is the base income decided by the employer, depending on the designation and experience of the employee. The basic pay of an individual is calculated without adding bonuses, benefits, overtime, tax deductions and other compensations made to the salary of an employee. Basic pay is always taxed, if the basic pay is high then the tax liability will also be high.
Basic salary can be calculated as the salary, which an employee receives without adding bonuses, overtime payments. It can be calculated from the gross salary, it remains fixed and it does not increase even if the work time increases.
The various components that make up Gross Salary are as follows:
Gross Salary = Basic Salary + Allowances + Overtime Payments + Bonus + Perquisites.
Net salary or take-home salary is the actual pay, that an employee receives after deducting taxes and other subtractions like, employee’s contribution to Provident Fund, pension scheme etc. It is the amount that is credited to the employee’s salary account.
Your take-home salary can be calculated in the following manner: -
Net Salary = Basic Salary + Allowances (bonus, benefits) – Reductions/Deductions
Another way to calculate Net Salary is: -
Net salary = Gross salary- PF contributed by employee – ESI Contribution/ Income Tax – Professional taxes.
Gross salary = CTC- EPF- Gratuity
Taxable Income = Gross Salary- PF- Conveyance Allowance- LTA- HRA- Medical Bills- Medical insurance- Tax.
Income Tax- An individual must calculate his/her income tax by checking the income tax slabs and brackets.
Take Home Salary/ Net Salary = Gross Salary- Income Tax- PF- Professional Tax.
CTC or Cost to Company is the annual salary package which the company gives to an employee. It is basically the expenses a company makes on its employees including various components like House Rent Allowance, Provident Fund, Medical insurance, bonus and incentive as well as other allowances. CTC is based on various factors and that’s why it varies, which results in the variation of the net salary.
There are various components that influence the calculation of CTC.
The various components are as follows:
CTC = Basic Salary + Allowances provided by the Company
Employees can increase their net salary by making investments in several tax saving schemes like, PPF, Equity Linked Saving Scheme (ELSS) etc. The above-mentioned investments won’t increase an employee’s CTC, but it may increase his/her net salary. Under Section 80CCF you can also make an investment in Infrastructure bonds. You can also buy a house by taking housing loan and increase your net salary and last but not the least, you can increase your take home salary by keeping your basic pay low and increasing other tax-free allowances.
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14th June 2017