How To Use A Take-Home Salary Calculator
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12 January 2022
Section 16 Of The Income Tax Act: Deductions, Allowances And Benefits
12 January 2022Take-home salary is the total salary that you receive after various deductions. A take-home salary calculator provides a detailed picture of various deductions and shows the actual salary you get at the end of the month. Read on to know how to use a take-home salary calculator and know your in-hand salary.
How to Use a Take-Home Salary Calculator?
To calculate take-home salary with any online salary calculator, you can follow these steps:
- Step 1
Open an online take-home salary calculator.
- Step 2
Enter your CTC or Cost to Company in the relevant box.
- Step 3
Now, put the bonus that is included in your CTC either in value or in percentage.
- Step 4
The calculator will now display your total gross pay along with your performance bonus. It will also show the employer PF, employee PF, professional tax, employee insurance and your take-home salary.
How Does A Take-Home Salary Calculator Work?
To understand how a take-home salary calculator works, let’s take an example for a better understanding:
For instance, your CTC (Cost to Company) is Rs. 7.5 lakh, and you do not receive any bonus Rs. from your employer during a financial year. So, your gross salary will be Rs 7.5 lakh.
Now, let’s say the professional tax deducted by your state government is Rs. 2,400 in a year. In addition, there is an EPF contribution of 12% from the basic salary by both the employee and the employer.
EPF is calculated at a maximum salary of Rs. 15,000 a month. So, 12% of Rs. 15,000 would be Rs. 1,800 per month. Thus, your EPF contribution would stand at Rs. 21,600 each year. Similarly, your employer will also make a contribution of Rs. 21,600 towards EPF. Moreover, there is an annual deduction of Rs. 3,000 per year that will go towards employee insurance.
So, total deductions would stand at:
Professional tax + Employee insurance + EPF (both employee and employer)
= Rs. 2,400+ Rs. 3,000 + Rs. 21,600 + Rs. 21,600
= Rs. 48,600
Thus, your take-home salary would be Rs 7,01,400 (Rs. 7,50,000- Rs. 48,600).
Also read: Standard Deduction For Salaried Employees
Components of Your Salary
A salary consists of different components. These components usually include the following:
- Basic Salary
Your basic salary is generally around 40% to 50% of your total salary. The basic salary will always be a fixed component of your CTC (Cost to Company).
- House Rent Allowance
This component of the salary is provided by the employer to those employees who live in rented accommodation. The HRA is exempted from income tax under Section 10(13A). However, this exemption won’t be available if you do not live in a rented place.
- Leave Travel Allowance
Your employer provides a certain allowance for travel expenses. You need to furnish the necessary proof to receive this allowance. As a salaried individual, you can seek LTA exemption under Section 10(5) of the IT Act.
- Bonus
You might also receive a performance incentive, also known as a bonus. This is a part of your CTC and can be fully taxable
- Special Allowance
This particular component of your salary is also taxable.
- Contribution Towards Provident Fund
Both you and your employer make a contribution of 12% of the basic salary towards the Employees’ Provident Fund each month. You can avail tax deductions for the contribution you make towards EPF under Section 80C of the Income Tax Act.
- Professional Tax
Professional tax is a special tax that is levied on your employment by the state. The state may impose a maximum of Rs. 2,500 as professional tax in one financial year.
Also read: How To Use Online Income Tax Calculator?
Benefits of an Online Take-Home Calculator?
Here are some of the top benefits of an online take-home calculator:
- Take-home salary calculators provide a detailed breakdown of different components of your salary.
- You can determine your take-home salary correctly within seconds.
- These online instruments are free, and you can access them anytime, anywhere,
- You can get a clear idea of your and your employer’s contributions towards EPF.
Final Word
You should remember that the variables (incentives, bonuses, and others) are paid on a quarterly basis. So, you would not receive the same take-home salary each month. Your take-home salary will be more than the calculated amount in the months you receive variable pays. Use a take-home salary calculator to find out your in-hand pay every month.
FAQs on Take-Home Salary Calculator
The income tax that you will have to pay will depend on the tax slab that you belong to. There is a basic exemption limit of Rs. 2,50,000. If your yearly income is below the basic minimum, you do not have to pay income tax.
Your salary is made of various components. Some of these components include house rent allowance, travel allowance, special allowance, bonus and more. Among them, components such as house rent allowance, leave travel allowance are exempted from taxation. You can claim exemption on these components of your salary while paying income tax.
Basic salary is the fixed component of your salary that your employer pays for the work you do. Basic salary is determined before making any deductions or adding any allowances or bonuses. Gross salary does not include deductions such as professional tax, insurance or others. But it includes bonuses, overtime incentives, etc.
CTC is the total salary package that an employee gets. It is the amount that your employer spends directly or indirectly for hiring you.
Some of the CTC components that qualify as direct benefits include dearness allowance, house rent allowance, bonuses or incentives, special allowance, leave travel allowance and more. Indirect benefits include interest-free loans, company accommodations, health insurance premiums paid by employers and others.
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