If you are in college or about to start working, you must have heard of the term CTC (Cost to company) from seniors or teachers. Before coming to CTC, you must know the salary slip. A salary slip is a document given to you at the end of every month if you are working in a company. A salary slip is required when you apply for another job because your next salary offer is decided on the basis of your current salary slip.
However, it is extremely important to understand salary slips’ components because many people confuse CTC and In Hand salary. Companies are aggressive when it comes to inflating CTC to show that they are offering so much which is not true. CTC is not the amount employees get, rather it is the amount the company spent on employees to hire and retain them. In this article, we will learn about CTC, components or cost to the company, how to calculate the in-hand salary based on your CTC, and how to use an in-hand salary calculator.
Learn everything about CTC, components or cost to the company, how to calculate the in-hand salary based on your CTC, and how to use the in hand salary calculator.
Salary slip is a crucial document for employees.
Understanding Salary Slip
When you receive your offer letter from a company, the CTC amount is mentioned in the letter, and many people tend to think that the CTC divided by 12 months is what they will receive every month which is not true. CTC is the amount a company spends on you directly or indirectly every year.
CTC includes the starting salary you receive monthly and other benefits such as EPF, medical insurance, HRA, and other allowances. However, you can use an online in hand salary calculator to save time and effort. Let’s look at the components of a salary slip:
- Basic salary: Basic salary is the most important component of your salary slip as it is the amount you are paid by your employer every month. The basic salary can be 40 to 50% of your CTC, depending on the employee designation.
- House rent allowance (HRA): House rent allowance is offered to employees staying in rented accommodation. If you are a resident of a metro city, the HRA should equal the basic salary and 40% of the basic pay for non-metros cities. If you do not live in rented accommodation, you can make HRA fully exempt from taxes U/S 10(13A).
- Employee provident fund: Employee provident fund is the 12% contribution of the employee’s basic salary from both the employee and employer. It is a significant part of your CTC and is mandatory. EPF contribution can help employees avail tax benefits up to INR 1.5 lakhs U/S 80C of the IT Act.
- Leave travel allowance: Employees are provided leave travel allowance for travel expenses. You can cover expenses for air tickets and railway tickets. Employees can avail of tax benefits U/S 10(5) of the IT act. Ensure you are submitting proof of your traveling expenses to get tax benefits.
- Special allowance: Special allowance is a specific amount in your salary structure and is taxable.
- Bonus: The employees get a bonus incentive based on position and performance from their employers, which is completely liable to be taxed.
- Professional tax: Professional tax is paid Government (of state). You can keep in mind that the amount exceeds INR 2,500.
Employees can calculate their net salary by using an in-hand salary calculator.
What is an In-hand Salary Calculator and How Does it Work?
An in hand salary calculator helps you to gauge your net income from the CTC after deduction. To calculate the in-hand salary, you will have to enter Cost To Company along with the bonus. Then the in hand salary calculator will show the in-hand salary, employee provident fund, medical insurance, HRA, income tax, and any additional allowance.
You will have to use various formulas at different aspects to gauge in-hand salary by using an in hand salary calculator. The formulas are given below:
- To calculate the gross salary, you must eliminate the bonuses, employees’ provident fund, and gratuity from the CTC.
- Gratuity can be calculated by adding basic salary and dearness allowances, then multiplying the amount by 15/26 and the total years the person is employed by the firm.
- Taxable income can be calculated by deducting the PPF or EPF contribution, HRA, LTA, medical insurance, tax-saving investment, and other needful deductions from the gross salary.
- Net salary can be calculated by deducting the income tax, EPF contribution, and professional tax from the Gross salary.
You can calculate the in-hand salary by using the in hand salary calculator from Jupiter Money in a few seconds. All you have to do is enter the CTC and the bonus amount added to the CTC. Jupiter money in hand salary calculator will show the total gross pay along with the bonus, employer PF, employee PF, professional tax, medical insurance, and net salary.
CTC Vs in-Hand Salary: Differences
CTC is cost to company, which is the cost total incurred to employ and retain employees. It includes the basic salary given to the employees, along with other benefits such as employee provident fund, House rent allowance, health insurance plus any additional benefits. Some companies provide allowances for cab service, loans, etc. However, the allowance and benefits vary from company to company. Additionally, your net salary is determined by the cost to the company.
Gross salary can be considered as the remaining salary after deducting EPF and gratuity from the Cost to the company. It is the amount before subtracting professional tax, IT, and other deductions.
To conclude, as an employee, you must be aware of the components of your salary and how to use an In hand salary calculator to determine the actual salary. However, you must provide the required data or information to calculate the net salary. Also, check how you can avail of tax benefits using U/S 80C.
