CloudFare image
Support support image
Name is required.
Please enter valid Name.
Email ID is required.
Please enter valid Email.
Phone Number is required.
Please enter valid Phone Number.
Message is required.

Faster, easier and secure gateway to e-file income tax return

Heading Income Tax Clculator icon

Calculation of Gross Salary and CTC as per Salary Calculator in India

The word salary is derived from the Latin word ‘Salarium’, which means the quota of salt given to Roman soldiers as a part of their payment for service. In simple words, salary is a periodic amount or compensation paid to an employee by an employer in return for the work or services rendered by the employee in the company. It is paid at regular intervals, like monthly or annual basis.

There are different components and allowances in the structure of a salary in India Basic Salary, Net Salary, Gross Salary, CTC i.e. Cost to Company, Dearness Allowance (DA) and House Rent Allowance (HRA).

The Basic Salary in the Salary Structure

Basic Salary is a part of the salary amount paid to an employee by an employer. It is the base income of an individual which does not include any bonuses, benefits, overtime, tax deduction and other compensation made to the salary of an employee.

Basic salary is a fixed income agreed upon by the employee and employer and is based on the position that the employee holds in the company. The amount paid to an employee as Basic Salary differs from industry to industries even for the same position. This part of the salary is always taxable and it should not be more than 40% of the CTC (Cost to Company). Higher the basic salary higher will be the tax liability.

Calculating Basic Salary

Calculation of Basic Salary: Basic salary can be calculated as the salary which an employee receives without any additions like a bonus, overtime payments etc. It can also be calculated from gross salary. The rate of basic salary in the total salary remains fixed and does not increase even if the employee works overtime. Bonuses and incentives do not raise the employee’s basic salary.

Gross Salary

Gross salary is defined as the monthly or yearly salary paid to an employee before any deductions are made from it, by an employer.

The various components that make up Gross Salary are as follows:

  • Basic Salary, pension, gratuity, overtime payment, exgratia and cash rewards that are given by an employer based on the performance of an employee.
  • Allowances – House Rent Allowance (HRA), Medical, Leave Travel, Dearness Allowance (DA) and other such allowances.
  • Prerequisites – Rent for accommodation, electricity, water, and fuel.

Calculating Gross Salary: Gross Salary = Basic Salary + Allowances + Overtime Payments + Bonus + Perquisites.

Net Salary

Net Salary is also known as Take Home Salary. It is the actual salary which the employee receives after deducting taxes and other subtractions like the employee’s contribution to provident fund, pension scheme etc. Basically, it is the actual amount which is credited to the employee’s salary account.

Calculating Net Salary Manually

The Basic formula for calculating Net Salary is:

Net Salary = Basic Salary + Allowances (bonus, benefits) – Reductions/Deductions

Although the Net Salary can be calculated by different calculators available online, to understand the calculation of salary better

Below are the components used to calculate Net Salary:

  • First, calculate the Gross Salary for 12 Months.
  • After calculating the yearly gross salary, subtract income tax payable and employee’s contribution to Provident Fund (PF), Employee State Insurance (ESI) contribution/Income Tax and any professional tax.

The above steps will result in Net Salary.

Net salary = Gross salary- PF contributed by employee – ESI Contribution/ Income Tax – Professional taxes.

Calculation of Net Salary using Calculator

Net salary can be calculated with the help of various online calculators available. For calculating salary online, you just need to fill the required details in a step by step procedure.

Usually, the details required for filing in the calculator will be as follows:

  • Figures of your Basic Salary
  • Contribution made to Provident Funds by employee and employer
  • Bonus
  • Gratuity
  • Superannuation benefits

CTC (Cost to Company)

CTC or Cost to Company is the annual salary package which the company gives to an employee. It indicates the total amount of expenses that a company spends on an employee within a year.CTC includes various components like House Rent Allowance, Provident Fund, Medical insurance, bonus, and incentive as well as other allowances. All these components added together make Cost to Company.

CTC is based on various factors and thus, varies, thereby, the net salary of the employees also varies.

Calculation of CTC

There are various components that determine the calculation of CTC.

The various components are as follows:

  • Basic salary
  • Dearness allowance
  • Bonus and incentives
  • Conveyance allowance
  • House rent allowance
  • Medical Allowance
  • Leave travel allowance
  • Vehicle allowance
  • Mobile phone allowance
  • Special allowance

CTC = Basic Salary + Allowances provided by the Company

Let us understand this with the help of an example. Say, your basic salary is Rs. 20,000 per month, dearness allowance (DA) is Rs. 10,000 per month; conveyance allowance Rs. 1,000 per month, HRA is Rs. 5,000 rupees per month. From the provided information, your annual package would be Rs. 4,32,000. This is the actual cost, which is spent by an employer on an employee or this is the actual cost the company invests for employing an employee.

Dearness Allowance

Dearness Allowance is provided by government to the employees in the public sector and to pensioners as the cost of living allowance. This component of the salary is applicable to both Indian and Bangladeshi employees.

DA is a fixed component of the salary which aims at hedging the inflation impact. Dearness Allowance component of one’s salary may differ for it is based on the living allowance which varies with regards to the location you are employed at. It means that DA will be different for employees living in the urban, semi-urban or rural sector.

House Rent Allowance

HRA or House Rent Allowance is an integral component of an employee’s salary. It is the allowance paid by the employer to compensate for the place rented by the employee for residential purposes.

Salaried employees can claim HRA under Section 10 (13A) of the Income Tax Act as per rule 2A of Income Tax Rules. Self-employed individuals can also claim HRA under Section 80GG of the Income Tax Act.

Calculating HRA Exemption

There are several factors that influence HRA calculation.

These factors are listed below:

  • Salary
  • HRA Received
  • Actual rent paid
  • City of residence (metro, non-metro or rural)

Calculating HRA with Example:

An employee, who stays in Mumbai and earns a salary of Rupees 50,000 per month rents an apartment for Rupees 15,000 per month. In this case, the individual can obtain HRA equal to 50% of the basic salary which amounts to 50% of Rupees 50,000 = Rs. 25,000.

HRA received from company = Rs. 25,000

Excess of rent paid (over 10% of total salary) = Rs. 15,000 - 10% of Rs. 50,000 = Rs. 15,000 – Rs. 5,000 = Rs. 10,000

Net taxable HRA = Rs. 25,000 – Rs. 10,000 = Rs. 15,000.

The difference between Gross and Basic salary

Basic salary is the amount paid by an employer to an employee without any additions or subtractions made to it, whereas, gross salary is the amount of salary paid by the employer after adding extra benefits like allowances. Basic salary is a part of gross salary so basic salary will always be less than the gross salary. For instance, if an employee is getting a gross salary of Rs. 40, 000 and his basic salary is Rs. 25,000 then the remaining Rs. 15, 000 are additional benefits which may include HRA allowance, travel Allowance, overtime payments, perquisites etc.