How is the Take Home Salary calculated?
We made this Calculator so that no one will ever need to manually do
their salary calculations! However, the below explanation is provided
for those who want to understand how the calculations are done.
Step 1. Determine Gross Salary:
Before we can calculate the
Net Salary, we should first determine the Gross salary. Gross Salary
is obtained by subtracting the Employer's contribution Provident Fund
contribution(EPF) and Gratuity from Cost to Company(CTC).
Gross Salary = Cost to Company(CTC) -
Employer's PF Contribution(EPF) - Gratuity.
Step 2. Determine Taxable Income:
Taxable income is
obtained by subtracting Conveyance Allowance, House Rent
Allowance(HRA), Leave Travel Allowance(LTA) Professional Tax, Medical
Bills, Medical Insurance, Tax Saving Investments .
Taxable Income = Gross Salary -
Employee's PF Contribution(PF) - Conveyance Allowance - HRA - LTA -
Medical Bills - Medical Insurance - Tax. Saving Investments - Other
Step 3. Calculate Income Tax:
Calculate Income tax by
Tax Slabs and rates
. Apply 2% Educational cess and 1% Higher and
Secondary cess to the income tax . Step 4. Calculate Take
Subtract the Income Tax, Provident Fund (PF) and
Professional Tax from the Gross Salary(determined in step 1).
Take Home Salary = Gross Salary - Income
Tax - Employee's PF Contribution(PF) - Prof. Tax.
Calculated values may not match with your payslip
due the following reasons:
1. Your variable pay is paid quarterly, so you will not have the same
take home each month, in the months the variable pay is paid, your
take home salary will be more than the calculated value. In other
months, it would be less than the calculated amount.
CTC includes your variable pay, as the name indicates variable pay
amount differs based on various factors. This will cause your CTC to
vary, this will have a knock-on effect on your take home. You can
correct his by adjusting your CTC to match the actual amounts in
variable pay. For example, if your CTC is ₹ 15 Lakhs which
includes a variable pay of ₹ 2 lakhs, however you only received
₹ 1 lakh as part of your variable pay for this financial year.
In this case enter your CTC as ₹ 14 lakhs for accurate
3. The Salary Calculator calculates your PF
and EPF to be 12% of your Basic Pay and Gratuity as 4.81% of Basic
Pay. If your PF is paid as a different percentage, you need to enter
the actual mount paid to you in the PF field for accurate
Various ways of increasing your Take Home salary
The Best Ways: Below are the best ways to reduce you
taxable income, whats more, you don't spend penny to utilize these
exemptions, you just have be leave the money invested for a few years.
1. Invest upto ₹ 1,50,000/- in ELSS ,NSC,LIC,Home Loan,PF,PPF,
Pension under income tax sections 80C, 80CCC, 80CCD
upto ₹ 20,000/- on Infra structure bonds under section 80CCF -
Lock-in period is between 5 to 15 years
3. If your employer is
giving food voucher, opt for them and use them.
4. Put some money
in saving bank and the interest earned is tax exempt upto ₹
The Second Best Ways: If you have used up the above
allowances to the limit and want to look for more ways of saving
money, you can utilise the below exemptions. But remember, there is no
free lunch here, you need to invest some money to save.
1. If you
are planning to buy a house, take a home loan you can save tax on
₹ 3,50,000/- .
2. You can also look into RGESS, however you
only get 50% exemption, and you should not have traded via DEMAT
account before and your salary should be below ₹ 10,00,000/- .
The Rest: You need to actually spend this money to
save tax in this category.
1. If you higher rate tax payer, why
not go on a holiday and save 33% , so you only pay 67% of the money on
transportation, only 2 journeys are allowed in a block of 4 years. The
current block of four years ends on 31 December 2014. So, hurry up!
2. Buy medical insurance for your family and parents for upto ₹
35,000/- and this amount will be exempt from income tax .
Useful features of the take home salary calculator
1. Calculates your Net Salary, Income Tax, PF, EPF and Gratuity. This
gives you clarity on your salary breakup and helps you gain clear
understanding of your salary components.
2. Provides a
comparison between your Take Home Salary, Gross and Cost to
Company(CTC). This is to highlight the distinction between Gross
Salary and CTC.
3. Calculates your current tax saving and
helps you identify various tax savings to increase tax savings. This
makes it easy for you to get a clear understanding on various tax
saving avenues available for you.
Why is there no option to select gender ?
Gender is no longer relevant, tax brackets are same
for Male and Female employees.
Delhi, Chennai , Mumbai and Kolkata are metro
cities for the purpose of HRA calculations.
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