Salary breakup, salary structure and everything you need to know about salaries!

The excitement associated with your first job is inexplicable. Undoubtedly, one of the most exciting things about starting a new job is getting that first pay cheque at the end of the month. However, that excitement comes with some confusion owing to the jargon that you come across for the first time with regards to your salary. “The salary mentioned by the company was X rupees, but the amount I received is less than that amount. Where’s the rest?” This is the most common question that one gets on receiving the pay slip. It is usually less than the expectation of a fresher employee.  We know the amount of confusion all of this can create.

There are various terms associated with a salary that is perhaps difficult to understand for a fresher. Terms like CTC, basic salary, gross salary, allowance, reimbursements, tax deductions, provident fund, and insurance often create confusion. One is usually in a state of confusion when one has to calculate take home salary. Hence, we have attempted to delineate all the terms associated with the salary in order to make it simpler for you to grasp the concepts and familiarize yourself with them.

Click here to open our accurate Take Home Salary Calculator

Understanding CTC in Your Salary Structure

The phrase “Cost to Company” or CTC as it is generally referred to, is the total amount that a company spends on an employee. However, in the salary breakup, CTC doesn’t mean the amount that you receive in your pay slip. There are many components in your CTC that you won’t receive. In interviews, companies generally advertise the CTC and not the take home salary. Your CTC is inclusive of your basic pay, direct benefits, indirect benefits, your contribution to savings and tax deductions.

Basic Salary

Basic salary is the core of salary and is a fixed part of one’s compensation package. In simpler words, it is the amount paid to an employee and many components are added to or deducted from this amount. A basic salary depends on the employee’s designation and also the industry in which the employee works. Your basic salary will be minus your allowances, reimbursements, insurance and provident fund.

Gross salary

Gross salary is the salary inclusive of your basic salary and allowances.
Gross Salary = Basic Salary + Allowances

Allowance

An allowance is an amount received by an individual for meeting service requirements. Allowances are given in addition to the basic salary. Allowances depend on companies and various types of allowances are given like HRA, Leave Travel Allowance(LTA), Children’s Education Allowance, Lunch Allowance, Phone Allowance, Travel Allowance among others.

Reimbursements

Occasionally, employees are entitled to several reimbursements like medical treatments, phone bills, newspaper bills etc. in their salary structure. The money is not received in the salary, but on submission of the bills, reimbursement will be given. Generally, there is an upper limit for every category of reimbursement.

Provident Fund or PF

Note: Don’t confuse EPF(Employee Provident Fund) with PPF(Public Provident Fund).

Provident fund is an investment both by the employer and the employee each month, the lump sum amount of which is provided to the employee on retirement.

  • Provident fund contribution is 12 percent of the basic salary and is directly deposited in the employee’s PF account. So, twelve percent of the basic salary gets contributed from the employee and another twelve percent by the employer. Contribution for the provident fund is mandatory for Indian companies.
  • PPF is a voluntary contribution by the employee and is completely controlled by the employee. Your employer has nothing to do with your PPF account. People open a PPF account for two main reasons, one is for tax saving purposes and second for long term investment. This is because PPF provides 8.5% per annum and more importantly, both contribution and maturity amount is tax-free. Apart from the basic fact that PPF is your personal provident fund account and only you can contribute there, EPF contribution is made by you and your employer.

Tax

The tax levied on one’s personal income is called Income Tax. If your annual income exceeds the maximum amount which is not chargeable, you have to pay a tax at the rate prescribed under the finance act. Usually, an employee gets his or her salary after the tax is deducted by the employer. This process is called as Tax Deduction at Source (TDS). The company has to issue a Form 16 which contains the details about the salary earned by that employee and the amount of tax deducted.  The tax deducted is paid to the government by the company. Professional Tax is the tax charged by the state government in order to let an individual practice a certain profession. The maximum amount payable per year is INR 2,500. It depends on one’s monthly salary and also on the state in which one works. The professional tax levied varies from state to state in India.

Professional Tax Slab in India (Statewise) Per Month

NIL Up to INR 15,000/-
INR 150 for INR 15,001 to 20,000/-
INR 200 for INR 20,001/- or Above
NIL Up to INR 10,000/-
INR 150 for INR 10,001 to 14,999/-
INR 180 for INR 15,000 to 24,999/-
INR 208 & 212* for INR 25,000/- or Above
*Professional Tax is INR 208 for first 11 months. In the 12th month, it is INR 212
NIL Up to INR 25,000/-
INR 83.33 for INR 25,001 to 41,666/-
INR 166.67 for INR 41,667  to 83,333/-
INR 208.33 for INR 83,334/- or Above
NIL for Rs 12,500/-
INR 150 for INR 12,501 to 16,667/-
INR 180 for INR 16,668 to 20,833/-
INR 190 for INR 20,834 to 25,000/-
INR 200 for INR 25,001/- or Above
NIL Up to INR 5,999/-
INR 80 for INR 6,000 to 8,999/-
INR 150 for INR 9,000 to 11,999/-
INR 200 for INR 12,000/- or Above
NIL Up to INR 25,000/-
INR 100 for INR 25,001 to 41,666/-
INR 150 for INR 41,667 to 66,666/-
INR 175 for INR 66,666 to 83,333/-
INR 208* for INR 83,334/- or Above
*Professional Tax is INR 208 for first 11 months. In the 12th month, it is INR 212.
NIL Up to Rs 15,000/-
INR 200 for INR 15,001/- or Above
NIL Up to INR 1,999/-
INR 20 for INR 2,000 to 2,999/-
INR 30 for INR 3,000 to 4,999/-
INR 50 for INR 5,000 to 7,499/-
INR 75 for INR 7,500 to 9,999/-
INR 100 for INR 10,000 to 12,499/-
INR 125 for INR 12,500 to 16,666/-
INR 166 for INR 16,667 to 20,833/-
INR 208 for INR 20,884/- or Above
NIL Up to INR 12,500/-
INR 125 for INR 12,501 to 14,999/-
INR 208 & 212* INR 15,000/- and Above
*Professional Tax is INR 208 for 11 months and INR 212 for the 12th month.
NIL Up to Rs 7,500/-
INR 175 for INR 7,501 to 10,000/-
INR 200 & 300* Above INR 10,001/-
*Professional Tax is INR 200 for 11 months and INR 300 for the 12th month
**Women earning a salary of up to Rs 10,000/- P.M. are exempted from paying Professional Tax.
NIL Up to INR 4,166/-
INR 16.50 for INR 4,167 to 6,250/-
INR 25 for INR 6,251 to 8,333/-
INR 41.50 for 8,334 to 12,500/-
INR 62.50 for INR 12,501 to 16,666/-
INR 100 for INR 16,667 to 20,833/-
INR 125 for INR 20,834 to 25,000/-
INR 208 & 212* for INR 25,001/- or Above
*Professional Tax is INR 208 for 11 months and INR 212 for the 12th month
NIL Up to INR 13,304/-
INR 125 for INR 13,305 to 25,000/-
INR 200 & 300* for INR 25,001/- or Above
*Professional Tax is INR 200 for 11 months and INR 300 for the 12th month.
NIL Up to Rs 3,500/-
INR 16.66 for INR 3,501 to 5,000/-
INR 40 for INR 5,001 to 9,000/-
INR 85 for INR 9,001 to 10,000/-
INR 126.67 for INR 10,001-Rs 12,500/-
INR 182.50 for Above Rs 12,501/-
NIL Up to INR 5,000/-
INR 70 for INR 5,001 to 7,000/-
INR 120 for INR 7,001 to 9,000/-
INR 140 for INR 9,001 to 12,000/-
INR 190 for INR 12,001 to 15,000/-
INR 2496 for INR 15,001/- or Above
NIL Up to INR 8,500/-
INR 90 for INR 8,501 to 10,000/-
INR 110 for INR 10,001 to 15,000/-
INR 130 for INR 15,001 to 25,000/-
INR 150 for INR 25,001 to 40,000/-
INR 200 for  INR 40,001/- and Above
Arunachal Pradesh
Andaman & Nicobar
Chandigarh
Dadra & Nagar Haveli
Daman & Diu
Delhi
Goa
Haryana
Himachal Pradesh
Jammu & Kashmir
Lakshadweep
Nagaland
Punjab
Rajasthan
Uttaranchal
Uttar Pradesh

Source for Professional Tax Slabs State wise: Simple Tax India

HRA or House Rent Allowance

Note: Self-employed individuals cannot claim HRA.

It is an amount paid out to salaried employees by companies. Employees can get tax benefits on the amount paid towards accommodations (or home rent) every year. HRA received is not fully exempt from tax. Actual HRA offered will be the lowest of the following:

  • The total amount received as the HRA from the employer in the financial year.
  • Actual rent paid in the year – 10% of the basic salary in the year.
  • 50% of the annual basic salary if staying in a metro city or 40% of the annual basic salary if staying in a non-metro city.
    • Those who stay in their own house and do not pay rent, cannot claim HRA. Landlord’s PAN is mandatory for HRA exemption if the total rent paid is over Rs 1 lakh per year.
    • An example: Say Priya stays in New Delhi. Her ‘take home’ salary every month is Rs. 50,766/- and she pays Rs. 16,000/- per month, towards home rent to her landlord.

Net Payable50,766
Basic21,000
HRA12,600
Conveyance1,600
Other9,240
Medical1,250
Telephone3,000
Fuel2,800
Income Tax-703
Education Cess-21
Gross51,490
Gross Deduction-724
Rs. 12,600 x 12 (months) = Rs. 1,51,200/-
(Rs. 16,000 x 12) – {10% of (Rs. 21000 x 12)} = 1,92,000 – 25,200 = Rs. 1,66,800/-
50% of (Rs. 21,000 x 12) = Rs. 1,26,000/-
It is evident that the final HRA amount that will be exempted from Priya's tax is Rs. 1,26,000/- as this is the least of all the three.

Form 16

It is the proof of employee’s income and tax paid to the government. It is issued under section 203 of Income Tax Act for Tax. The taxpayer has to use the Form 16 to file the Income Tax returns every financial year. Apart from income tax, a professional tax is also paid to the state government of the state where one practices a profession.

Life Insurance and Health Insurance

Many companies provide a health insurance to their employees and their dependents and also a life insurance, the premium for which is borne by the employee and is included in the CTC.

Gratuity

Gratuity is the part of the salary that is received by an employee from the employer for the services offered by the employee upon him or her leaving the job.

  • In India, the basic requirements for gratuity are set out under the Payment of Gratuity Act 1971. The basic requirement for gratuity in India is set out under the Payment of Gratuity Act 1971.
    Dearness Allowance or DA is a living allowance paid to employees and is calculated as a percentage of one’s basic salary. The percentage value depends on the company and this is not mandatory for every company. Note: To fall under the Act and qualify for gratuity, an employee needs to have at least five full years of service with the current employer, except in the event that an employee passes away or is rendered disabled due to accident or illness, in which case gratuity must be paid. 
  • Gratuity is calculated in terms of the following.
    Gratuity Calculation= [ (Basic monthly Pay + D.A) x 15 days x No. of years of service ] / 26
  • Here, DA is Dearness Allowance which is different for each company.
  • We can assume DA to be zero as Dearness Allowance (DA) is a cost of living adjustment allowance paid only to Government employees, Public sector employees (PSU) and pensioners in Pakistan, Bangladesh, and India.
  • Say your CTC is 6 lakhs per annum and your basic monthly pay is INR 15,000. Then the gratuity that will be deducted every year = 15/26 x 15000 x 1 = INR 8653.
  • Though an employee can receive the gratuity amount only after 5 years, it will be deducted by the employer every year and hence it will get deducted from your CTC.

Understanding FY and AY in your salary breakup

Financial year (FY)

In order to understand tax better, let us understand what a financial year and assessment year means. A financial year is a year as reckoned for taxing and accounting purposes. It commences from April 1 of a year and ends on March 31 of the following year. In the case of filing IT returns, financial year is the previous year. It is the year in which one has earned the income. Hence, if you are filing a return this year, that is 2016, the financial year will be 2015-16.

Assessment Year (AY)

Assessment year, on the other hand, is the year in which you file your returns. It is the year in which the income that you have earned in the financial year will be evaluated. For example, if you have earned your income between 1 April 2015 and 31 March 2016, then 2016-2017 will be the Assessment Year. Hence, it is the year in which your tax liability will be calculated on the previous year’s income. As an example, take a look at the tabular data below for better understanding:

Income year Financial Year Assessment Year
2012-2013 2012-2013 2013-2014
2013-2014 2013-2014 2014-2015
2015-2016 2015-2016 2016-2017

The amount of tax paid by an individual is dependent on the income range. Let us look at the tax slabs for the financial year 2015-2016 to gain a better comprehension of the tax structure. 

According to Arun Jaitley’s Budget 2017 announcement, Tax Slab for individuals for the FY 2017-2018 are as follows for a male or female Indian Resident Individuals below 60 years of age:

Net Income* Income Tax Education Cess Secondary And Higher Secondary Education Cess
Upto Rs. 2,50,000 Nil Nil Nil
Rs. 2,50,001-Rs. 5,00,000 5% of total income 2% of income tax 1% of income tax
Rs. 5,00,001-Rs. 10,00,000 Rs. 12,500 + 20% of total income – 5 lakhs 2% of income tax 1% of income tax
Above Rs. 10,00,000 Rs. 1,12,000 + 30% of total income – 10 lakhs 2% of income tax 1% of income tax

*Surcharge @10% will be applied for taxable income between Rs. 50 lakhs to Rs. 1 crore and @15% for taxable income above Rs. 1 crore. Jaitley also said that there will be a uniform benefit of Rs. 12,500/- per taxpayer, who have a CTC above Rs. 5,00,000/-.

  • The tax slab for FY 2014-15, FY 2015-16, and FY 2016-17 is the same, as given below.
Net Income* Income Tax Education Cess Secondary And Higher Secondary Education Cess
Up to Rs. 2,50,000 Nil Nil Nil
Rs. 2,50,001-Rs. 5,00,000 10% of total income exceeding Rs. 2,50,000/- 3% of income tax and surcharge 1% of income tax
Rs. 5,00,001-Rs. 10,00,000 Rs. 25,000/- + 20% of total income exceeding Rs. 5,00,000/- 3% of income tax and surcharge 1% of income tax
Above Rs. 10,00,000 Rs. 1,25,000 + 30% of total income – Rs. 10,00,000/- 3% of income tax and surcharge 1% of income tax

*Surcharge: It is 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge will be charged, if applicable).

How do you calculate your take home salary?

The most important question everybody has! You can calculate your take home salary provided you have a few numbers beforehand. We have provided some easy steps to help you calculate your take home salary. This can help you plan your savings ahead of time and also help you maximize your returns.

  • The first step is to find out the Gross Salary which is obtained by subtracting the employer’s contribution to one’s Provident Fund or EPF and gratuity from CTC.
    Gross Salary = CTC – (EPF + Gratuity)
  • Determine Taxable Income: In order to determine the part of your income that is taxable, subtract allowances, professional tax, medical bills, medical insurance, tax saving investments and other deductions from your gross salary.
    Taxable Income = Gross Salary – (Allowances + Medical bills + Medical Insurance + Tax Saving Investments + Other Deductions)
    You can easily calculate Income Tax by referring to the Income tax slab and rates provided above.
  • Calculate your Take Home Salary: In order to calculate your Take Home Salary, you simply need to subtract the Income Tax, Provident Fund (PF) and Professional Tax from the Gross Salary.
    Take Home Salary = Gross Salary – (Income Tax + Employee’s PF Contribution(PF) +Professional Tax) = CTC – (EPF + Gratuity) – (Income Tax + Employee’s PF Contribution(PF) +Professional Tax)
    Let us understand this better with a help of an example. Let’s assume that your annual CTC is Rs. 8,00,000 for the financial year 2015-16. Your annual conveyance is given as INR 19,200, Basic salary as INR 6,00,000 and HRA as INR 3,00,000. The salary break up will look something like the tables below:
Component Monthly (in INR) Yearly (in INR)
Take home 51,584.95 619,019.38
Income tax 476.72 5720.62
Professional tax 200.00 2,400.00
Gratuity 2,405.00 28,860.00
EPF/PF – contributed by employee (12 % of basic salary which is 600000 ) 6,000.00 72,000.00
EPF/PF – contributed by employer 6,000.00 72,000.00
Tax savings Monthly Yearly
Current 5,046.49 60,557.82
Potential 5,523.20 66,278.44
Comparision Monthly Yearly
TAKE HOME 51,584.95 619,019.38
GROSS 58,261.67 699,140.00
CTC 66,666.67 800,000.00

Explanation for how the above calculations are made in the salary structure:

  • Gross Salary: Gross Salary (699,140.00) = CTC (8,00,000.00) – EPF (72,000.00) – Gratuity (28,860.00)
  • Gratuity = Basic Pay+ D.A x 15 days x No. of years of service(5)  / 26
    Basic Pay – 6,00,000 (Please note that the values used are only for indication. Basic salary may include various components which will differ from company to company)

    D.A – 2004 (It is an assumed value. DA again differs from company to company)
    No. of years – 5 (The minimum number of years for an employee to be eligible for gratuity is 5 years)

    Gratuity – (6,00,000+2004 x 15 x 5)/ 26 = 28,860(approximately)
  • Taxable Income: Taxable Income (305,540) = Gross Salary (699,140) – PF (72,000) – Conveyance (19,200) – HRA (300,000) – Professional Tax (2,400)
  • Income Tax: The calculation of income tax is done using a tax slab, that has been shown in the table below.
Tax Bracket Tax Rate Earnings in this bracket Tax
0-2.5 lakh 0% 2.5 lakh 0
2.5 lakh- 5 lakh 10% 55,540 5,554
5 lakh-10 lakh 20% 0 0
Above 10 lakh 30% 0 0
Taxable Income and Tax   305,540 5,554

Income Tax for your Taxable Income of 305,540.00 is 5,554.00. If 2% Educational cess and 1% Higher and Secondary cess are applied to the Tax calculated below, your total tax would be INR 5,720.62.

  • Take home salary = Gross salary(6,99,140) – Income Tax(5720.62) – PF(72000) – Prof.Tax(2400) = 6,19,019.38
    So your monthly take home salary is Rs. 51,585 and yearly take home salary is Rs. 6,19,019. 

Click here to open our accurate Take Home Salary Calculator

How can you increase your take home salary?

Take home salary can be increased with the help of proper tax planning without having to alter the CTC. One must invest in tax saving instruments included in Section 80 C like PPF, ELSS in order to save tax and maximize returns.

Now that you are armed with relevant knowledge about the salary components, the next time you negotiate your salary with the HR, we are certain that you will have the upper hand in the negotiations.

Section 80 Deduction Table

Section Deduction on Capping for FY 2016-17
Section 80C Investment in PPF
Employee’s share to PF
NSCs
Life Insurance Premium
Tuition Fee of Children
Home Loan Principal Repayment
Sukanya Samridhi Yojna Account Investment
ULIPS
ELSS
Purchase Deferred Annuity Sum
Five-year Deposit Scheme
Savings Scheme of Senior Citizens
Subscription to Notified Securities/Deposits Scheme
Notified Pension Fund (Mutual Fund/UTI) Contribution
Home Loan Account Scheme of National Housing Bank Subscription
Public Sector or Private Company Providing Housing Finance Subscription
LIC Notified Annuity Plan Contribution
Equity Shares/Debentures of Approved Eligible Issue Subscription
NABARD Notified Bonds Subscription
Rs. 1,50,000/-
80CC LIC Annuity Plan or Deposits in any other Insurer Pension from a Fund Referred to in Section 10(23AAB)
80CCD(1) Employee Contribution to NPS Account Max up to Rs. 1,00,000
80CCD(2) Employer’s contribution to NPS account Max up to 10% of salary
80CCD(1B) Additional contribution to NPS Rs. 50,000
80TTA(1) Interest Income from Savings account Maximum up to 10,000
80GG For rent paid when HRA is not received from employer Least of (1) Rent paid minus 10 percent the adjusted total income. (2) Rs 2,000 per month (3) 25% of the adjusted total income.
80E Interest on Education Loan Interest paid an 8-year period
80EE Interest on home loan for first time home owners Nil
80CCG Rajiv Gandhi Equity Scheme for investments in Equities Least of (1) 50% of amount invested in equity shares (2) Rs 25,000
80D Medical Insurance – Self, spouse, children
Medical Insurance – Parents >60 years or uninsured parents >80 years old
Rs. 25,000Rs. 30,000
80DD Medical treatment of disabled dependent or payment to a specific scheme for the maintenance of disabled dependent
Disability is 40% or more but <80%
Disability is 80% or more
Rs. 75,000Rs. 1,25,000
80DDB Medical Expenditure on Self or Dependent Relative for diseases specified in Rule 11DD
-For > 60 years old-For < 60 years old-For > 80 years old
-Least of (1)Rs 40,000 (2) Amount actually paid
-Least of (1) Rs 60,000 (2) Amount actually paid
-Least of (1) Rs 80,000 (2)Amount actually paid
80U Individual suffering from a physical disability (including blindness) or mental retardation.
An individual suffering from severe disability
Rs. 75,000
Rs. 1,25,000
80GGB Contribution by companies to political parties Amount contributed (not cash)
80GGC Contribution by individuals to political parties Amount contributed (not cash)
80RRB Deductions on Income by Royalty of a Patent Least of (1) Rs. 3,00,000 (2)Income received

Free Downloadable Salary Slip XLS and Salary Breakup Structure XLS Files

free downloadable xls
Click here to download a dummy salary slip.
free downloadable xls
Click here to download a salary breakup structure xls file.

Free Salary Calculation Tool

Calculate your exact in-hand salary with our free take home salary calculation tool.


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