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Lets see an example explaining the salary.

An arbitrary salary break up is given below (Note: salary


structure varies from one company to another):
Component of Salary(per annum or p.a)

Amount

Basic Salary

480,000

Dearness Allowance

48,000

House Rent Allowance

96,000

Conveyance Allowance

12,000

Entertainment Allowance

12,000

Overtime Allowance

12,000

Medical Reimbursements

15,000

Gross Salary

6,75,000

Benefits vary from company to company. Example of benefits for the above employee are:
Medical insurance

2000

Provident Fund (12% of Basic)

57,600 (12% of 4,80,000)

Laptop

50,000

Total Benefits

109600

Cost to Company=Gross Salary + Benefits

6,75,000 + 109600=7,84,600

Benefits would also vary from company to company. In some Laptop may not be provided. In some cost
of cubicle would be added. For example: If rent of office space is Rs 200 per sq ft and then a cubicle of 6
feet by 8 feet (i.e48 square feet) would cost Rs. 9,600 per month, or Rs. 1,15,200 per year. Which can be
added to your CTC. Please note CTC varies from company to company. One can read Cost To Company
or CTC salary: Understanding and Calculation for more details.
How tax affect the various components of salary
Component of
Salary(per annum or
Taxable
p.a)
Amount Tax
Amount
Basic Salary

480,000

Full amount is taxable

480,000

Dearness Allowance

48,000

Depends on company policy. Mostly fully taxable.

48,000

House Rent
Allowance

96,000

Applicable if living in a rented house. Minimum of three


amounts (Note:Calculation shown below)

52,800

Conveyance
Allowance

12,000

Conveyance allowance of Rs 9,600 per annum is exempted


from tax. If salary component is more than 9,600, the
remaining part is taxable.In this case:12,0009600=2400Starting FY 2015-16, this limit has been
increased to Rs.19,200 per annum.

2,400
Before FY
2015-16

Entertainment
Allowance

12,000

Depends on company policy. Mostly fully taxable.

12,000

Overtime Allowance

12,000

Fully taxable

12,000

Medical

15,000

If substantiated with bills, are exempt to a limit of Rs 15,000

Reimbursements
Gross Salary

annually
6,75,00
0

Gross Taxable Salary

6,07,200

HRA Calculation
As explained in HRA Exemption,Calculation,Tax and Income Tax Return , the minimum of the three
amounts will be exempt from tax:
a. Actual HRA allowance in the salary package, that is Rs 96,000
OR
b. HRA received less 10 per cent of salary and DA, that is 43,200 (96,000 10% of 528,000)
OR
c. If you live in metropolitan (Delhi, Chennai, Bombay and Calcutta), 50 per cent of salary and DA
However, if you live in any other city, it is 40 per cent of salary + DA. So, in this case it would be Rs
2,11,200 (40% of 528,000)
So HRA will be minimum of ( 96,000; 43,200; 2,11,200) which is 43,200 which will be exempted.
So the portion that will be taxed in this example is = 96,000 43,200 = 52,800
Tax
As Gross Taxable Salary 6,07,200 falls in the highest tax bracket. This tax amount includes education
cess too. Assumption: Employee does not make any tax saving investment. Tax based on Assement Year
2011-2012 : 57,103. For tax estimator Tax Calculator from AY 2010-11 is is very helpful.
Tax
57,103
Employee PF contribution(12% of Basic)

57,600

Professional Tax

2400

Total Deductions

1,17,103

Net Salary = Gross Taxable Salary Tax

=6,07,200- 1,17,103=4,90,097

Net Monthly Salary

=490097/12=40,841.41

Can Take Home salary be increased?


Yes it is possible and that too legally. An employee can plan taxes and increase the take home. If
employee invests Rs 1, lakh in tax saving instruments, Section 80C such as PPF, Equity Linked Saving
Scheme(ELSS) etc he can save taxes. So now employee in above example will be taxed on 6,07,2001,00,00 = 5,07,200.
Amount to be taxed

5,07,200

Tax

33,413

Employee PF contribution(12% of Basic)

57,600

Professional Tax

2400

Total Deductions

93,413

Net Salary = Gross Taxable Salary Tax

=6,07,200- 93,413=5,13,787

Net Monthly Salary

=513787/12=42,815.58

Tax saving instruments under section 80C, 80G, House loan etc are beautifully depicted in
thisinfographic. Optimum Salary Structure Maximum In Hand Salary Or Minimum Tax Liability explains
how restructuring the salary would increase the take home

Proof of Salary being paid: PaySlip, Form 16


PaySlip
A paycheck is a document/record issued by an employer to an employee which shows how much money
an employee have earned and how much tax or insurance etc. has been deducted. .It will typically detail
the gross income and all taxes and any other deductions such as retirement plan or pension
contributions, insurances, garnishments, or charitable contributions taken out of the gross amount to
arrive at the final net amount of the pay. One can read format of payslip or see a sample here.

Form 16
If you are salaried employee in an organization, then you get the salary after deducting tax by the
employer. This process is called as Tax Deduction at Source (TDS). Company must issue a Form 16
which contains the details about the salary earned by that employee and how much tax deducted. The
Tax deducted is paid to government by the company. Form 16 is the proof of employees income and
tax paid to the govt. It is issued under section 203 of Income Tax Act for Tax. Tax payer has to use the
Form 16 to file the Income Tax return every financial year. One can read Understand Your Form 16
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million employees, is largest employer in India.Ref: Salary Income Tax Heads of Income:
Salary Understanding CTC and Your Salary Breakup, Tax implications of salary components, All you
wanted to know about CTC
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