Salary Calculator for Indian Salaried Employees
Salary includes all kind of emoluments and benefits extended to employees by the employers’ for the services rendered by them. It is paid at fixed intervals, generally every month, and often expressed as an annual sum. It includes both monetary payments as well as non-monetary facilities. Monetary payments refer to components such as basic salary, bonus, commission, allowances, and similar. At the same time, Non-monetary facilities mean benefits like housing accommodation, medical facility, interest-free loans, cab facility, and similar.
The breaking down of salary into individual, separate items or various components is referred to as Salary breakup. It gives you a better picture of what constitutes the salary.
This arrangement is advantageous in two ways:
- Both the employer & employee know what a specific portion of a salary constitutes.
- A well-structured salary helps in utilizing maximum benefits provided by the taxation law and thereby minimizing the tax impact.
The salary calculator is a simulation that considers a given set of parameters and calculates your take-home salary. The total salary, an employee, gets after all necessary deductions in the form of professional tax, statutory fund contributions, and applicable TDS. Considering the vast avenues of industry and markets that businesses operate in, there is no one blanket structure which can accommodate all industry needs. However, considering the widespread majority of small and medium enterprises in our country, we have developed a tool to smoothly calculate a CTC structure which employers can easily use and modify to suit specific business requirements. Refer our calculator Salary Structure Optimizer at no cost to find a salary structure that best suits your requirement.
Considerations in our Salary Calculator
All incomes from salary are taxable under the Income Tax Act 1961, subject to deductions and exemptions as provided by law. It is therefore important to understand the respective taxation aspect with each salary component as well.
Basic pay is the minimum sum of earnings that an employee stands to receive in terms of employment. Also, most of the other salary components are computed as a percentage of this pay as a base. Therefore, though it is the basic income level of an employee, it forms a major part of the total salary. The new wage code, once into force, will ensure a minimum of 50% of the total salary as the base pay. Basic salary is determined based on the designation of the employee and the industry in which one works. The term ‘wages’ are also used interchangeably with basic pay, meaning a fixed, regular payment earned for work or services. In terms of Income-tax, this amount is fully taxable.
Dearness Allowance (DA)
DA is calculated as a percentage of basic salary to mitigate the impact of inflation. The public sector pays a higher percentage as compared to the private. This amount is fully taxable.
House Rent Allowance
HRA is a special allowance specifically granted to an employee by his employer towards payment of rent for the residence of the employee. This component generally forms a major portion of allowances, ranging between 24% to 50% of Basic pay & Dearness Allowance. Salaried individuals residing in rented homes and in receipt of HRA can claim this exemption and reduce their tax liability. For further information on conditions attached and level of exemptions, refer our article HRA Calculator (House Rent Allowance)
Children Education Allowance
Allowance granted to meet the expenditure incurred on the education of children. An amount of Rs. 100 per month per child, (up to a maximum of two children) is tax-free to meet the education expenses u/s 10(14)(ii).
Children hostel allowance
Allowance granted to employees to meet the hostel expenditure of their children undergoing the education. An amount of Rs. 300 per month per child, (up to a maximum of two children) is allowed as a deduction u/s 10(14)(ii).
Transport allowance is granted to an employee to meet the expenditure to commute between residence and the place of duty. This amount is now fully taxable. However, in the case of blind/deaf and dumb / orthopedically handicapped employees, Rs.3,200 per month is exempted.
Meal vouchers/food coupons
Food in office premises or through non-transferable paid vouchers usable only at eating joints, provided by an employer is not taxable if the cost to the employer is Rs. 50(or less) per meal under Sub-rule 7(iii) of Rule 3.
Reimbursement of Car expenses
Where a motor car owned by an employee is used partly for official and partly for personal purposes, reimbursement of expenses for the running & maintenance of the vehicle provided by the employer is exempted as stated below as per Sub-rule (2) of Rule 3:
- Engine Capacity up to 1600 cc- Rs.1,800 per month
- Engine Capacity above 1600 cc- Rs.2,400 per month
(Plus Rs.900 per month, if chauffeur is provided to run the motor car)
Interest-free loan or loan at concessional rate of interest
Interest-free loans or loan at concessional rate of interest provided by the employer are tax-free up to Rs.20,000 in aggregate under Sub-rule 7(i) of Rule 3.
Incentives, bonuses (annual, festive or interim), commission, and similar are considered as Other payments. They can further be classified based on a fixed or variable basis, calculated on the turnover achieved by the employee or targets met, and periodicity being bi-weekly, monthly or annual.
Exemptions & Deductions
This amount is a reduction in taxable income available to all salaried employees, irrespective of the sector they work.
A deduction is the lower of:
- Salary received or
- Rs. 50,000.
Pre-budget 2019-20, the limit of Standard Deduction was Rs. 40,000.
This tax is a state levy of tax and thereby differs from state to state. The amount is pretty negligible. A full deduction is allowed against professional tax borne and paid by the employee.
Chapter VI Deductions
80C, 80CCC, 80CCD
- Public Provident Fund (PPF)- Employee’s share of PF
- Employee’s share of PF contribution
- National Savings Certificate (NSC)
- Life Insurance premium payment
- Children’s Tuition Fee (Full-time education of any two children)
- ‘Principal’ repayment of home loan
- Investment in Sukanya Samridhi Account
- National Savings Certificate (NSC)
- Unit Linked Insurance Plans (ULIPS)
- Equity Linked Savings Scheme (ELSS)
- Sum paid to purchase Deferred Annuity
- Five-year deposit scheme (Post Office);
- Term Deposit in a Scheduled Bank (5 Years or more)
- A senior Citizens savings scheme
- Subscription to notified securities/notified deposits scheme
- Contribution to notified Annuity Plan of LIC
- Contribution to Pension Fund of LIC or other Insurance company.
- Employee’s contribution to a Notified Pension Scheme. (National Pension Scheme; Atal Pension Yojana)
A deduction is allowed up to a limit of Rs. 1,50,000 annually.
Medical Insurance premium paid for self, spouse, parents, dependent children is allowed up to Rs. 25,000. Premium paid for parents (above 60 years) is allowed up to Rs. 50,000.
Expenditure on medical treatment of a disabled dependent relative
· Where disability is 40% to 80%, the deduction allowed is Rs. 75,000
· For disabilities above 80%, the deduction allowed is Rs. 1,25,000
Interest paid on education loan is allowed as a deduction up to 8 years, beginning from the year in which the individual starts repaying interest.
Interest paid one-vehicle loan (purchased after 01/04/2019) is allowed as a deduction up to Rs. 1,50,000.
Interest on deposits in Savings bank accounts (except Senior citizen) is allowed as a deduction up to Rs. 10,000
Deduction for persons with disability. However, the individual has to be a resident of India.
- Deduction is Rs. 75,000
· Where the disability is severe, deduction is Rs. 1,25,000
Rebate u/s 87A
A rebate is a reduction from the amount of tax payable (the deductions stated above were a reduction from income). Tax rebate u/s 87A is allowed for Resident Individuals only. The condition being, Total Income of the individual should not exceed Rs. 5,00,000
If the above condition is satisfied, Rebate is allowed as Lower of the following:
- The Income Tax calculated on such income or
- Rs. 12,500
Tax on Total Income (slab rate)
Rebate (Lower of: Tax above or Rs 12,500)
Tax after Rebate
A surcharge is an additional tax levied on the amount of income-tax. If you are an individual taxpayer, the surcharge is applicable only if your Total Income exceeds Rs. 50,00,000. Surcharge is calculated on Total Income before adding Health and Education Cess. Refer our article Surcharge Rate & Calculation for more information.
Health and Education Cess is calculated on Income tax after including the effect of surcharge (if applicable). It is levied at a rate of 4%. The resulting amount after adding surcharge is the Total Tax Liability of the individual.
As discussed earlier, a well-structured salary helps in utilizing maximum benefits provided by the taxation law and thereby minimizing the tax impact. Refer our tool Salary Structure Optimizer at no cost to find a salary pay-out that best suits your requirement.