1. Know thy Salary
Though, conceptually salary components are more or less same across
the globe, this presentation focuses on employees working in India
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2. 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 Company
CTC is definitely not your take-home Pay!

3. 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!

4. Compensation is always comprehensive!
Short Term Medium Term Long-term
• Your take-home pay • Training to improve your • PF
knowledge & skill
• Pay for Performance • Gratuity
• On-job learning
• Allowances • Superannuation
• Employee stock options
• Reimbursements • Post retirement health
• Health insurance benefits
• Medical benefits • Social security measures
like benevolent funds
Judge the benefits holistically!

5. 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.

6. 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

7. 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)

8. 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, taxable
HRA and applicable taxes are fairly complicated
computations

9. HRA and tax exemptions
You must have HRA component in your salary
You must be paying rent
Your spouse shouldn't be the owner of the house
You 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 conditions
1. In Metros (Delhi , Mumbai,Kolkota and Chennai) 50% of annual salary, for rest of India
40% of annual salary
2. Actual HRA Received from the company
3. 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)

10. 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 allowance
Paid to compensate the costs involved in a city
life!
Taxable

11. 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)

12. 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.

13. 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

14. 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 sharing
Festival bonus
Joining bonus
Retention bonus
Employee referral bonus
Bonus is Taxable

15. 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!

16. 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

17. Car
Value as taxable income is based on car capacity
Less than 1600 CC
Reimbursed amount minus Rs 1,800 + Rs 900 for the
driver/Month
More than 1600 CC
Reimbursed amount minus Rs 2,400 + Rs 900 for the
driver/Month

18. Academic allowance
Any Allowance for perusing academics is Tax Free
Proof of expenditure needed for tax exemption
Asserts like Desktop / Laptop provided for official
purpose is not taxable

19. 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.

20. 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.

21. Tax exemption of Gratuity
Gratuity of government employees – Tax free
Non-government employees
Maximum exemption from tax is least of the 3 crieteria given
below
1. Actual gratuity received
2. Rest. 350,000
3. 15 days’ salary for each completed year of service or part
thereof

22. 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.

23. 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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