Understanding salary breakdown, salary structure and salary components! With Form 16 for the F.Y.2020-21
Understanding salary breakdown, salary structure and salary components! Terms like CTC, basic
salary, total salary, allowance, remuneration, tax deduction, provident fund, and insurance often lead to
confusion for employees. In this article, we have tried to explain all the salary-related terms to make
the salary easier for you.
CTC or Cost to Company means that a company spends (directly or indirectly) on an employee. It refers to the employee’s total salary package. CTC includes monthly salary such as basic salary, various allowances, reimbursement etc. and annual components like gratuity, annual variable salary, annual bonus.
CTC is not equal to the salary an employee has to take home. There are many factors in the CTC that are not accepted as part of the housing wage.
CTC = Total Salary + PF + Gratuity
Let us now discuss the common pay components:
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Base salary
Starting salary is a person's basic income. This is a specific part of one's compensation package.
The starting salary also depends on the surname of the employee and the industry in which the employee works.
Full pay
Before taxes and other deductions, the total salary is calculated by adding one’s basic salary and allowances. These amounts include bonus, overtime pay, leave pay and other differences.
Total Salary = Basic Payment + HRA + Other Allowances
Net salary or sitting salary
Net payment or take-home payment is received after deducting income tax (TDS) and other deductions as per the policy of the concerned company.
Net Salary = Basic Salary + HRA + Allowance - Income Tax - Employees Provident Fund - Professional Tax
Allowance
The total allowance received by the employee to meet service needs. In addition to the basic salary, allowances are provided and vary from company to company. Some common types of allowances are discussed below:
HRA or Housing Rent Allowance: This is the amount that companies pay to employees for rent or housing expenses.
Travel Allowance (LTA): The amount of LTA an employee pays to a company to reduce internal travel costs. It does not include travel, food, accommodation, etc.
Vehicle Allowance: This allowance is given to cover the travel expenses from the accommodation of the employees to the office.
Added Value Added Allowance: Employees are given a living allowance to deal with the effects of inflation. This only applies to government employees, public sector employees and pensioners.
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Other such allowances are special allowances, medical allowances, incentives, etc.
Revenge
Sometimes, employees are entitled to various payments such as medical treatment, phone bills, newspaper bills. In general, each category has a high level of revenge.
Employees' Provident Fund / EPF or Provident Fund
The Provident Fund is a monthly investment for both employer and employee that serves as a single employee retirement benefit plan.
Provident fund assistance is mandatory for the following two:
Case 1: Basic Salary <15000> 15000 (per month)
In this case, the company is likely to offer 12% of the 15,000 (i.e. 1800) or 12% of the basic salary.
It is credited directly to the employee’s PF account. You can see your balance here.
Thus, 12% of the starting salary is paid by the employee and the remaining 12% is paid by the employer. Generally, the employer's contribution will only appear on your offer letter and not on the payslip. The contribution that comes from your salary is called the EPF and it appears in the payment. Contribution to the Provident Fund is mandatory for Indian companies.
Public Provident Fund or PPF
PPF is the voluntary contribution of the employee and is fully controlled by him. The owner has nothing to do with the PPF account.
This amount is not specified in CTC or Papal, however, if an employee presents it as an investment for tax saving purposes it will appear on Form 16.
You may also, like: - Automated Income Tax Revised Form 16 Part B for the F.Y.2020-21 [This Excel Utility can prepare at a time 100 Employees Form 16 Part B]
People open a PPF account for two main reasons - one for tax savings and the other for long-term investment. PPF offers. 6% per annum (synthesized annually) and most importantly, both contributions and maturity amounts are tax-free.
Do not confuse this with the owner’s PF cooperation.
Life insurance and health insurance
Most companies offer health insurance and life insurance to their employees, for which the employer pays and is included in the CTC. So you have to subtract it when calculating your house salary.
Let’s understand income tax and it relates to salary income and salary components.
Income tax
The tax levied on one's personal income is called income tax. Normally, the employer gets his salary from the employee after-tax deduction. This process is called TDS exemption. The amount deducted is paid by the government
The standard deduction of Rs 50,000/-
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