Employees who are paid for their services are generally offered gross salary as their CTC, which is short form for cost to company. Cost to company is a term that implies the expense that the company will have to incur on an employee for a specific year. However, cost to company is an amount that is never equal to the amount of money you get to take home.
Various Components of Gross Salary
Basic Salary:
Basic salary is the exact amount of salary before any deductions are made or extra components are added to the salary. The basic salary for an employee is usually lower than the gross salary or the take-home salary.
Gratuity:
Gratuity is a part of salary that is paid by an employer to an employee to express gratitude for his/her services in the company. The employer may provide gratuity out of its own pocket or can avail a gratuity group plan from an insurance provider. Gratuity is generally paid to an employee on his/her retirement or when he/she leaves the company. However, according to Section 10(10) of the Income Tax Act, gratuity is payable only when an employee has completed 5 years with his/her company. The gratuity received by employees is taxable as “income from salary”.
HRA or House Rent Allowance:
HRA or House Rent Allowance is a salary component paid by employer to employees for meeting the accommodation expense of renting a place for residential purposes. HRA forms an integral component of a person’s salary. HRA is applicable to both salaried as well as self-employed individuals.
Salary Arrears:
Salary Arrears refer to any amount that is paid as a result of salary hike. Generally salary arrears come in lump-sum for more than 1 month of time. For example, if your salary was increased in June but is applicable from the month of January. Then you are eligible to receive arrears worth the last 6 months.
Perquisites:
Perquisites are benefits received by an employee as a result of his/her official position and are payable in addition to the salary received by them. Perquisites or fringe benefits can be taxable or non-taxable depending upon their nature.
Pension:
Components that do not Form Part of Gross Salary
The difference between gross salary and net salary is that while gross salary is your salary before any deductions are made from the salary, net salary is the salary an employee takes home after all deductions have been made.
Basic salary is a rate of pay agreed upon by an employer and employee and does not include overtime or any extra compensation. Gross salary, however, is the amount paid before tax or other deductions and includes overtime pay and bonuses. For instance, if an employee has a gross salary of Rs. 40,000 and a basic salary is Rs.18,000, he or she will get Rs.18,000 as fixed salary in addition to other allowances such as House rent allowance, conveyance, communication, dearness allowance, city allowance or any other special allowance.
Cost To Company – CTC
Cost to Company or CTC as it is commonly called, is the cost a company incurs when hiring an employee. CTC involves a number of other elements and is cumulative of House Rent Allowance (HRA), Provident Fund (PF), and Medical Insurance among other allowances which are added to the basic salary.
These allowances may often include free meals or meal coupons, such as Sodexo and the like, office space rent, cab service to-and-fro office, and subsidized loans etc. Basically, all these elements when combined together, form the entire Cost To Company.
CTC is considered a variable pay as it varies based on various factors and thus when the CTC varies, the take home salary or net salary of the employee varies. This can be corrected by an individual by simply matching the CTC to the actual amount they are receiving.
CTC is basically the sum total of Direct Benefits (sum paid to an employee on a yearly basis), Indirect Benefits (sum the employer pays on behalf of the employee), and Saving Contributions (saving schemes the employee is entitled to).
How to use the Income Tax Calculator?
For a person between the age of 60 to 80 years, income tax will be calculated as below:
For a person above the age of 80 years, income tax will be calculated as below:
These figures also do not include any HRA exemption or loss from a self-occupied house that one can claim. There are other deductions that are available under the old tax regime under various sections. Just to name give a few examples, section 80G for charity, section 80E for interest on education loan and others.
The income tax on your salary will be calculated depending on the tax slab and whether you have opted for old tax regime or new tax regime. The taxable income will be worked out after making applicable deductions, if any. If you invest in life insurance, you can claim deduction from taxable income of life insurance premium paid upto ₹ 1.5 lakhs. Section 80C also offers deduction from taxable income for investments in PPF (Public Provident Fund), NSC (National Savings Certificate) and other instruments along with home loan principal repayment. Additionally, if you invest in health insurance, you can get deduction up to ₹ 25,000 under Section 80D for yourself and your family and up to ₹ 25,000 (₹ 50,000 if age of insured is 60 years or above) for your parents. You can also get deduction of home loan interest up to ₹ 2 lakh under Section 24. These are ways you can consider to lower your overall tax outgo.
If your income is below the taxable threshold of ₹ 2.5 lakhs currently, it is not compulsory to file your income tax return. However, if you have a PAN (Permanent Account Number) card and an income that falls below the taxable threshold, experts advise the filing of your ITR with a NIL return. This is to show the IT department that you did not have any income that was taxable for a specific year and hence, did not pay your taxes for the same. This will help you immensely in the future. Also, if you are an Indian resident with investments/assets outside India, you have to file returns even if your overall income falls below the taxable threshold. You will have to file your tax returns if you are eligible to claim refunds on any taxes that you may have paid in advance.
What is the professional tax in India?
What is gross income?
Gross income is the total income earned by an individual in a year before any taxes or deductions. For example, even though your monthly salary might be ₹ 30,000, you might only receive a check for ₹ 25,000. In that case, your net income would be ₹ 25,000, but your gross income is ₹ 30,000
What is the income tax on a ₹ 24 lakh salary in India?
How much tax should I pay on my salary?
The income tax on your salary will be calculated depending on the tax slab and whether you have opted for old tax regime or new tax regime. The taxable income will be worked out after making applicable deductions, if any. If you invest in life insurance, you can claim deduction from taxable income of life insurance premium paid upto ₹ 1.5 lakhs. Section 80C also offers deduction from taxable income for investments in PPF (Public Provident Fund), NSC (National Savings Certificate) and other instruments along with home loan principal repayment. Additionally, if you invest in health insurance, you can get deduction up to ₹ 25,000 under Section 80D for yourself and your family and up to ₹ 25,000 (₹ 50,000 if age of insured is 60 years or above) for your parents. You can also get deduction of home loan interest up to ₹ 2 lakh under Section 24. These are ways you can consider to lower your overall tax outgo.
Which income is not taxable in India?
What is the maximum non-taxable income limit?
Does everyone have to file their income tax returns?
If your income is below the taxable threshold of ₹ 2.5 lakhs currently, it is not compulsory to file your income tax return. However, if you have a PAN (Permanent Account Number) card and an income that falls below the taxable threshold, experts advise the filing of your ITR with a NIL return. This is to show the IT department that you did not have any income that was taxable for a specific year and hence, did not pay your taxes for the same. This will help you immensely in the future. Also, if you are an Indian resident with investments/assets outside India, you have to file returns even if your overall income falls below the taxable threshold. You will have to file your tax returns if you are eligible to claim refunds on any taxes that you may have paid in advance.
* Tax benefits are subject to conditions under relevant sections and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates.Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above
Please note: This calculation is generated on the basis of the information provided and is for assistance only. And is not intended to be and must not alone be taken as the basis for an investment decision. The Tax write-up above is for general understanding and reference. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information. Tax laws are subject to amendments from time to time. ICICI Prudential Life Insurance Company Limited expressly disclaims any liability to any person, if tax benefits stated above are denied to the customer.
Sources:
https://www.bankbazaar.com/tax/gross-salary.html
https://www.iciciprulife.com/insurance-guide/financial-planning-tools-calculators/income-tax-calculator.html
https://www.calculator.net/salary-calculator.html