The regular payments made to the employee by the employer for the work accomplished are defined as a salary. The employment contract of the employee provides the details about the salary and other additional components.
What is a Salary Calculator?
A salary calculator is an easy-to-use tool that assists in calculating the take-home annual salary, take-home monthly salary, total annual deductions, total monthly deductions, etc., of an individual.
An employee needs to fill in his CTC, bonus included in CTC, monthly professional tax, monthly employer PF, monthly employee PF, and any monthly additional deductions in the designated boxes to derive the net result.
What are the Components of the Salary Structure?
- Basic Salary: Basic salary is roughly 40% to 50% of the total salary which an employee earns on the basis of experience, knowledge, skills, qualifications, etc. It is a fixed component of the 'Cost To Company' package.
- House Rent Allowance (HRA): It is a component of the salary offered by the employer to the employees who live in rented housing. HRA is partially/fully exempt from taxes under Section 10(13A) of the IT Act 1961. Note that HRA is fully taxable if the employee does not live in a rented house.
- Leave Travel Allowance (LTA): An employee can also receive LTA that an employer gives as an allowance to the employee for travel costs and expenses. Employees are required to submit proof of travel in order to claim LTA.
- Professional Tax: It is the tax on employment which is levied by the State. Note that, in a financial year, the State can charge a maximum of Rs 2,500 as a professional tax.
- Special Allowance: An employee may receive a special allowance component in the salary structure, which is fully taxable.
- Bonus: An employee may earn a performance incentive from his employer, which is termed as a bonus.
- Employee Contribution to the Provident Fund: Under the Employee Provident Fund (EPF), the employer and the employee contribute 12% of the employee’s basic salary each month. Such contribution made by the employee stands for a deduction under Section 80C.
How Do Salary Calculators Work?
For calculating the take-home salary, an individual must enter the CTC bonus, PF, professional tax, deductions, etc.
Understand with an example here.
Assume your Cost To Company (CTC) is Rs 5 lakh. The employer gives you a bonus of Rs 50,000 for the financial year. Then your total gross salary is Rs 5,00,000 – Rs 50,000 = Rs 4,50,000 (Note, the bonus is deducted from the CTC).
Gross Salary = Rs 5,00,000 – Rs 50,000 = Rs 4,50,000
- The gross salary tends to deduct the professional tax of Rs 2,400 a year (example).
- Next, it deducts the contributions towards the Employee Provident Fund (EPF) made by both the employer and the employee.
- EPF contribution is calculated on a maximum salary limit of Rs 15,000 per month. It deciphers to 12% of Rs 15,000, i.e. Rs 1,800 per month or Rs 21,600 per year.
- Let us consider the yearly contribution of Rs 21,600 towards the EPF, made by the employee and similarly by the employer towards EPF (Note, 8.33% of the employer’s contribution will get directed to the employee pension scheme)
- Next, let us assume the employee also has a yearly deduction of Rs 2,000 towards certain employee insurance.
Total Deductions = Professional tax + EPF (Employee Contribution) + EPF (Employer Contribution) + Employee Insurance
Total Deductions = Rs 2,400 + Rs 21,600 + Rs 21,600 + Rs 2,000 = Rs 47,600.
Take Home Salary = Gross Pay – Total Deductions
Take Home Salary = Rs 4,50,000 – Rs 47,600 = Rs 4,02,400
Benefits of Salary Calculator in India
Groww’s in hand salary calculator can calculate the take-home salary within a span of just a few seconds.
The calculator helps in understanding the changes in the salary structure when an employee receives a bonus or some deduction.
The gross salary calculator indicates the different components of an employee's salary clearly. It bifurcates and defines the amounts and deductions in a precise manner.
The Groww’s CTC calculator helps in estimating and getting a clear idea about the monthly and annual deductions, employee and employer's contribution towards EPF, etc.