Salary is the regular payment provided by the employer to the employee for their labour. The salaries would be specified in the job contract, with payments generally made once a month. The pay structure is made up of the following elements:
- Minimum Wage
- Allowance for House Rent
- Allowance for Travel While on Leave
- Exceptional Allowance
- Professional Tax Bonus
However in this salary comes a deduction allowed from taxable income as per section 16 of the Income Tax Act of 1961 It allows for ordinary deductions, entertainment allowances, and professional tax deductions. A salaried taxpayer can use this deduction to reduce the amount of taxable salary income that is subject to tax.
Now the Income Tax Act allows for a standard deduction u/s 16 (ia). Transport allowance of Rs 19200 and medical reimbursement of Rs 15000 were replaced by the standard deduction and announced in the 2018 budget by then Finance Minister, Arun Jaitley. Pensioners were also allowed to take advantage of the standard deduction.
What is a salary calculator?
The salary calculator is a computer program that calculates your net pay. It is the entire compensation received by an employee after all deductions have been made. A formula box is included in the salary calculator, where you may input the Cost To Company (CTC) and the bonus included in the CTC.
The salary calculator will display deductions such as employer and employee provident funds, professional tax, employee insurance, and take-home pay.
Salary calculation formula
Since the pay calculations have so many variables, one needs to utilize separate formulae for each one. Only then can one calculate their take-home pay. Here are a few key formulae to remember.
- (CTC – EPF – Gratuity) gives gross salary
- Gratuity: (Basic salary + Dearness allowance) × 15/26 × years of working for the company
- (Gross Salary – EPF/PPF Contribution – Tax-Free Allowance – HRA – LTA – Health Insurance – Tax-saving Investments – Other Deductions) gives Taxable Income
- (Income Tax – EPF Contribution – Professional Tax – Net Salary/Take-Home Salary) gives Gross Salary
How to use a salary calculator?
To utilize the Salary Calculator, follow these steps:
- The annual cost to the firm or the CTC must be included.
- As a percentage or a sum, enter the bonus included in the CTC.
- The Salary Calculator will show you the entire gross salary as well as the performance bonus.
- The professional tax, employer PF, employee PF, employee insurance, and take-home wage will also be displayed.
Conclusion
In seconds, the Salary Calculator will determine one’s take-home pay. It sort of depicts the many elements of pay. The calculator demonstrates how a bonus affects a person’s wage structure, as well as the advantages that come with a new compensation package. Finally, it shows how much the company contributes to the employee provident fund.