Know thy Salary Though, conceptually salary components are more or less same across the globe, this presentation focuses on employees working in Indiawww.LCDing.Com
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!
What’s your CTC ?CTC is simply the money given to you + the moneyspent on youIncludes 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 yousometimes even office space rent!
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 fundsJudge the benefits holistically!
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.
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
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)
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 laymans language is simple Tax exempted if you provide rent receipts else, taxable HRA and applicable taxes are fairly complicated computations
HRA and tax exemptionsYou must have HRA component in your salaryYou must be paying rentYour spouse shouldnt be the owner of the houseYou are not allowed to pay rent to your spouse andget tax exemption! However, you can do claim taxexemption if you pay rent to your parents or yourrelatives.Amount eligible for tax exemption – which ever islowest 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)
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
Children Education allowance Children Education Allowance is Paid to aid childrens 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)
Leave Travel Allowance LTA is for Travel with your family (Self, Spouse and Children )to any place in India The tax implication in laymans 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.
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
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
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!
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
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
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
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 employers 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.
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.
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
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.
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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