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Though, conceptually salary components are more or less same across the globe, this presentation focuses on

employees working in India

Know thy Salary

Basics

Gross Salary: is salary before deductions

Net Salary: is what you get after deductions

Deductions : PF + Taxes+ Loans etc.

CTC : CTC means Cost To CompanyCTC is definitely not your take-home Pay!

What’s your CTC ?

CTC is simply the money given to you + the money spent on you

Includes both monitory and non-monitory.

Basic + DA + Performance linked pay + Bonus + HRA + Allowances + Reimbursements + LTA + Perks + Perquisites + Social benefits (like PF, Gratuity, Superannuation) + Insurance + Medical + Reimbursements + Training costs + Meal coupons+ Transport + Club membership fees + other subsidies +….

Virtually every penny company spends on you sometimes even office space rent!

Judge the benefits holistically!

• Your take-home pay

• Pay for Performance

• Allowances

• Reimbursements

• PF

• Gratuity

• Superannuation

• Post retirement health benefits

• Social security measures like benevolent funds

• Training to improve your knowledge & skill

• On-job learning

• Employee stock options

• Health insurance

• Medical benefits

Short Term Long-term Medium Term

Compensation is always comprehensive!

Basic salary

Basic salary is a fixed component of your take-home pay for the work you do!

It is also the base of computations of other benefits like PF, Gratuity, LTA and sometimes HRA

It is taxable and best if it is be around 40% of CTC.

The paradox here is higher ratio of basic salary means more tax and low ratio means impact on social benefits like PF and Gratuity etc.

Allowances

Allowances paid to the employee irrespective of the expenditure incurred under the head of allowances.

Majority of the allowances are taxable and few are partially taxable

Receipts are to be produced to get partial exemption on tax

Dearness Allowance

It is the allowances is paid to neutralize impact of Inflation.

This is something like making cost-of-living adjustments in your salary

Usually DA is linked to Consumer Price Index.

So, when the prices of commodities go up your DA goes up. If they come down your DA comes down! (It is very unlikely)

House Rent Allowance

HRA is usually a major component of salary slip.

Allowance given by the company towards rent for an accommodation.

The tax implication in layman's language is simple

Tax exempted if you provide rent receipts else, taxableHRA and applicable taxes are fairly complicated computations

HRA and tax exemptions

You must have HRA component in your salaryYou must be paying rentYour spouse shouldn't be the owner of the houseYou are not allowed to pay rent to your spouse and get tax exemption! However, you can do claim tax exemption if you pay rent to your parents or your relatives.Amount eligible for tax exemption – which ever is lowest of the following 3 conditions1. In Metros (Delhi , Mumbai,Kolkota and Chennai) 50% of annual salary, for

rest of India 40% of annual salary2. Actual HRA Received from the company3. The amount of rent actually paid in excess of 10% of annual salary

Salary means Basic + DA + Perf. Linked bonus . (Allowances and perquisites to be removed)

Conveyance Allowance

Transport allowance is paid to meet traveling expenses from residence to office

Amount up to Rs 800 per month (Rs. 9,600 per year) is tax exempted – no need to produce receipts.

City compensatory allowancePaid to compensate the costs involved in a city life!Taxable

Children Education allowance

Children Education Allowance is Paid to aid children's education.

Rs 2,400 per year is tax-free.( Rs.100 Per month per child up to 2 children)

Children Hostel allowance :Rs 7,200 per year is tax-free.( Rs.300 Per month per child up to 2 children)

Leave Travel Allowance

LTA is for Travel with your family (Self, Spouse and Children )to any place in India

The tax implication in layman's language is simple ,Tax exempted if you provide proof of travel and expenditure else taxable

Two LTAs in a block of four years is allowed for tax exemption.

Pay for Performance/Incentives

Pay for performance is catching up and many organizations give a part of the salary as pay for performance

The periodicity of payment may differ from company to company

The amount received under this head is taxable

Bonus

Bonus payment in many organization is governed by Payment of Bonus act 1965,India

Usually paid once an year, mostly profit sharing with employees by the company some times as a percent of basic to all employees or may be based on employee’s performance and contribution

There can be many types ….here are few…Profit / Gain sharingFestival bonusJoining bonusRetention bonusEmployee referral bonus

Bonus is Taxable

Reimbursements or Claims

Reimbursement of certain expenses like Phone, Mobile, Internet etc.

Reimbursements are Tax free.If you are entitled to Rest. 2000 Mobile expences, and you have a bill of Rest. 1000, You will get only Rs.1,000.Remember it is an reimbursement not an allowance!

Medical Reimbursement

Medical expenditure incurred on self or dependants

Amounts up to Rs.15,000 per is not Taxable subject to submission of bills

Some organizations reimbursement health insurance premium paid for employee and his family. This is exempted from tax

Car

Value as taxable income is based on car capacity

Less than 1600 CCReimbursed amount minus Rs 1,800 + Rs 900 for the driver/Month

More than 1600 CCReimbursed amount minus Rs 2,400 + Rs 900 for the driver/Month

Academic allowance

Any Allowance for perusing academics is Tax FreeProof of expenditure needed for tax exemption

Asserts like Desktop / Laptop provided for official purpose is not taxable

Provident Fund

Its a Social Security fund for your post – retirement

It is mandatory for you to contribute 12% of your basic Salary + DA towards PF.

The Employer also mandatorily contributes equal amount (12% of Basic + DA) towards Provident fund

Your contribution as well as employer's contribution Increases with Increase in your Basic + DA

You can contribute up to a maximum of 20% of your Basic salary +DA

From 12% amount mandatorily deducted, 3.67% will be deposited in your PF account and Rest of 8.33 % will be credited to your Family pension fund.

Gratuity

Gratuity, as the name suggests, is a scheme to motivate employees to serve organizations for longer tenures and is essentially a part of salary paid by the company/employer at the time of retirement or at the time of separation as a gratitude for the services offered by the employee.

5 years of continuous service is minimum eligibility criteria for payment of Gratuity.

Gratuity is computed based on a percent of your last drawn salary with a multiplier of number of years of service.

Tax exemption of Gratuity

Gratuity of government employees – Tax freeNon-government employees

 Maximum exemption from tax is least of the 3 crieteria given below

1. Actual gratuity received2. Rest. 350,0003. 15 days’ salary for each completed year of service or

part thereof

Superannuation

Superannuation is simply company pension plan or a retirement benefit.

The company contributes (15% of basic) on your behalf towards group superannuation policy.

Usually companies rely on organizations like LIC to manage their Superannuation Fund

About 25% the amount contributed by the company will be paid with interest at the time of retirement.

Rest is maintained by the organizations like LIC and will pay the employee at periodic intervals as selected by the employee

Incase of resignation of the employee, he can choose to transfer the scheme to the new company or with draw the amount ,subject to the taxes applicable for such withdraws or can retain the amount till retirement.

Tax calculator for 2011-2012

Download them here….

http://www.pankajbatra.com/india/income-tax-calculator-financial-year-2010-2011/

http://networkfp.com/file/download-income-tax-calculator-in-excel-2011-12

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