Whether you’re a fresher who is at the start of you’re professional career or someone who has been working for several years, I’m sure the thought of how to calculate your in-hand salary has crossed your mind at least a few times. With the help of a simple salary calculator, you can quickly determine the take-home salary post deductions such as travel allowance, bonus, house rent alliance, provident fund, and professional tax. You must’ve also wondered what your salary growth would look like in the next five-ten years. With the help of this Salary Builder, you can get valuable insights regarding your salary growth and compare your salary with your peers.
What is Salary?
A regular payment made to employees in exchange for the work performed by them is known as a salary. A salary is determined based on comparing similar positions in the same industry or region. A salary is paid at fixed intervals, generally on a monthly basis. It may be determined based on assessing the number of vacancies for a specific job role.
What are Wages?
Wages are typically hourly payments for work performed. They are calculated by multiplying the number of hours worked by the hourly rate. Salaries, on the other hand, are typically annual payments for work performed. They are calculated by multiplying the number of hours worked by the hourly rate and then multiplying that by the number of weeks in a year. Wages may be hourly, daily, weekly, biweekly, or monthly.
Different Pay Frequencies
There are different types of pay frequencies when it comes to paying a salary or a wage to an employee. These can range from daily, weekly, bi-weekly, monthly, or annually.
|Daily||You get paid everyday. Usually at the end of the day. Short-term contractors may pay this way.|
|Weekly||You get paid once a week, usually on a Friday. Weekly payments are relatively less common when compared to bi-weekly or semi-monthly.|
|Bi-Weekly||You are paid every two weeks, or around 26 times in a year.|
|Semi-Monthly||You are paid twice a month, usually in the middle of the month. (15th). Although, this may lead to inconsistency due to different number of days in different months.|
|Monthly||You are paid at the end of every month. This is the most cost-effective method of payment for employers.|
Understanding Gross Salary, Basic Salary, Net Salary, and CTC
Before we learn about the salary calculator, let us first understand the terms basic salary, gross salary, net salary, and CTC mean.
The fixed amount paid to the employee is known as the basic salary. This is the amount that is arrived at before any deductions, increments, bonuses, or allowances. The basic salary would remain the same, unlike other aspects of the CTC. The basic salary is the in-hand salary.
The Gross Salary is the amount that an employee makes in a financial year while working for the company. This amount doesn’t include any deductions such as professional tax, income tax, or medical insurance. However, it includes the amount such as bonuses, overtime pay, or holiday pay.
Cost To Company
CTC or Cost to Company is the amount that a company has directly or indirectly used to hire or retain employees. It is the total salary package that the company is providing to the employee and indicates the overall expenses that the company is spending on the employee in one financial year.
Under Cost to Company, there are various components. Some of these components are listed below:
- Basic Salary
- Conveyance Allowance
- Dearness allowance
- House rent allowance
- Medical allowance
- Leave travel allowance
- Vehicle allowance
- Telephone or mobile phone allowance
- Incentives or bonuses
- Special allowance
- Food Coupons
- Company leased accommodation
- Interest-Free Loans
- Income Tax savings
- Health and life insurances premiums paid by the employer
- Superannuation benefits
- Employer provident fund
Net salary is also known as the take-home salary. The overall amount paid to the employee after all deductions such as provident fund and taxes have been deducted. The Net salary is typically lesser than the gross salary. However, there is a chance that it is equal when the income tax is zero or if the amount payable to the employee is lesser than the mentioned government tax slabs. An employee’s gross salary would include benefits such as conveyance allowance, medical allowance, house rent allowance, etc.
Also Read: Top Highest paying jobs in the world
Difference between Gross Salary and Net Salary
The figure derived after totaling the allowances, and before deducting any tax amount is known as gross salary. Whereas, the amount that an employee takes home is known as the net salary.
The gross salary of an employee is inclusive of benefits such as conveyance allowance, medical allowance, HRA or house rent allowance, etc.
Net Salary = Gross Salary – All deductions such as professional tax, income tax, pension, etc. It is also known as the take-home salary.
A simple salary calculator has a formula used to calculate the salary considering various factors such as CTC or Cost to Company, bonus, and other such details. The salary calculator helps you clearly understand the various deductions such as employee provident fund, insurance, professional tax and helps you calculate the in-hand or take-home salary.
Follow these steps to calculate the take-home salary. First, enter your CTC or Cost to Company and bonus (if any) to determine the gross salary.
|Cost to Company||6,00,000|
|(-)EPF Employer Contribution||20,500|
|(-)EPF Employee Contribution||20,500|
- Let’s assume that the Cost to Company (CTC) is ₹6 lakh. If the employee receives a bonus of ₹40,000 for the financial year. The gross salary is ₹6,00,000 – ₹40,000 = ₹5,60,000. (Subtract the bonus from the CTC or Cost to Company).
- Gross salary = ₹6,00,000 – ₹40,000 = ₹5,60,000.
- After this, the next step is to reduce the professional tax of ₹2,400 for the financial year (professional tax may vary from state to state).
- After reducing the professional tax, you should subtract the contribution of the employer as well as the employee towards the EPF or the Employee Provident Fund.
- Assume that you have ₹20,500 as the yearly contribution by the employer and the employee towards EPF.
- The total deductions are ₹2,400 + ₹20,500 + ₹20,500. This equals to ₹43,400.
- The take-home salary is equal to gross salary minus the total deductions, i.e., ₹6,00,000 – ₹43,400 = ₹5,16,600.
- ₹5,16,600 will be the final take-home salary based on the salary calculator.
- Enter the yearly CTC or Cost to Company
- Mention the bonus included in the CTC
- You get the Gross Salary from which the EPF and professional tax will be deducted
- Displays the final take home salary
Now that we know more about the salary calculator, let us talk about what we mean by in-hand salary. It is the take-home pay and typically means the amount shown after all deductions are made.
In-Hand Salary = Monthly Gross Income – Income Tax – Employee PF – Other Deductions if any.
These deductions will vary depending on the CTC. The main deductions from the salary are provident fund, Income tax, and professional tax.
How to Calculate In-hand salary from CTC
- Calculate Gross Salary by deducting EPF and Gratuity from the CTC
- Calculate the taxable income by making the required deductions from the total income
- Income tax is calculated by adding the respective slab rate on calculated taxable income
- Finally, calculate the in-hand salary
Miscellaneous Employee Benefits
While the salary and wages being offered to an employee are important, there are other non-financial benefits that an employer can offer. Healthcare insurance, retirement plans, sick leaves, holiday or vacation days, company discounts, and bonuses are a few examples of miscellaneous benefits offered to employees. These benefits can also be considered while looking for a job as they add significant value.
This brings us to the end of the blog on the salary calculator. We hope you now have a better understanding of the salary breakup and what the different teams related to salary mean. If you have any further queries, feel free to leave a comment below, and we’ll get back to you at the earliest. You can also use the salary builder to gain insights on your salary growth in 5 & 10 years, compare your salary v/s peers, and find out how you can earn more.
Salary Calculator FAQs
To calculate the inhand salary, you can use the following method:
Take home salary = Gross Salary – Income Tax – EPF – Professional tax
DA or Dearness allowance is the fixed percentage of your basic salary. It is fully taxable and does not have any exemptions. HRA is not calculated on the basis of basic salary and is partially taxable.
HRA or House Rent Allowance is the part of your salary that is provided to you by the employer towards your rented accommodation. You are eligible for claiming HRA if you are living in a rented property.
The monetary benefit given to the employee in return for the services rendered is known as gratuity. When a person completes at least five years in an organization, they are eligible to receive gratuity. There are certain cases such as disability due to accident or disease, or death, wherein the gratuity can be paid before completing five years.
A Form 16 is a certificate issued by an employer to an employee, specifying the amount of tax deducted at source from the employee’s salary. It contains details regarding the salary earned by the employee and the amount of tax to be deducted. Any taxpayer is entitled to submit their Form 16 in order to file for Income Tax returns during the financial year. It also acts as a proof regarding the income earned and tax paid to the government.
EPF or Employers Provident Fund is a sum investment made by both the employee and the employer towards the Employee Provident Fund. It is a lump sum amount that will come handy during the employees retirement benefit scheme. This amount will be deposited into the employee’s PF account. EPF and Employee’s PF contribution are two separate things.
According to the Employees Provident Funds and Miscellaneous Provisions Act, 1952, the employee and employer contribute an equal amount towards the EPF. It is mandatory for all Indian companies and one of the two methods of calculation is typically followed:
– Basic Salary > ₹15000/month – Company can choose to contribute either 12% of ₹15000 (₹1800), or 12% of the basic salary
– Basic Salary < ₹15000/month – 12% of the basic salary
Essentially, 12% is contributed by the employer and 12% by the employee.
In the Union Budget 2020, the new tax regime was introduced wherein the individual taxpayers have an option to choose between the old and new tax regime. The new tax regime offers lower tax rates if you are willing to give up on certain deductions or exemptions under the Income Tax Act of 1961.