You must Calculate In-Hand Salary from CTC to know what amount will you receive monthly or annually. Read on to know about CTC Calculation and In-hand salary
Overview
In-hand salary differs from the CTC and Gross pay. CTC includes the basic salary along with the allowances and deductions and the gross pay is the basic salary and allowances after making the deductions.
As an employee, you must calculate your in-hand salary, so that you can manage your finances and budget. If you get your CTC from your company and want to Calculate In-Hand Salary from CTC, you need to know about several important terms and follow the steps. In this article, we will discuss CTC In Salary and the monthly, annualy calculation of in-hand salary.
CTC and In-Hand Salary
Employee costs are the expenses that are incurred by an organization to hire its employees. These include wages, salaries, and benefits paid to employees, as well as other benefits such as employer contributions for retirement plans or health insurance. The CTC that an employee receives includes the base salary along with all types of allowances and deductions given to them.
In many cases, the structure of these costs is influenced by recommendations from the pay commission, which reviews and suggests adjustments to salary packages and benefits to ensure fairness and competitiveness. In-hand salary or the basic pay is a part of CTC that is left after all the deductions are done and allowances are removed. It is usually 40-50% of the total CTC.
Important Terms Related to Salary
If you want to calculate In-Hand salary from CTC it is important that you know about terms related to it.
Some important terms related to salary and CTC are as follows.
Allowances
Allowances are a type of compensation that is paid to employees in the form of money or other benefits. Allowances are usually given as part of an employee’s salary, but can also be provided as part of a bonus or in addition to wages.
The allowance that an employee gets depends on their eligibility and the type of service they provide. Some common allowances given to an employee are the dearness allowance housing rent allowance.
Deductions
Deduction from the salary of employees is a form of payment made by an employer to the employee. It is a sum of money that the employee gets as part of his or her salary and it is deducted before actual payment for work done by him/her.
The purpose behind this practice is to avoid any kind of tax payment on such amounts. However, there are certain limits for this deduction as well as other conditions that need to be fulfilled before being allowed for deductions from salaries.
Income Tax
Income tax is levied on the income of individuals, companies, and trusts. It is based on the principle that all persons who have earned income are required to pay taxes on it. The amount of tax paid depends upon the income derived from salary, wages, interest, etc., as well as any other sources such as capital gains or dividends.
The income that is taxable under Income Tax Act 1961 includes all types of income such as salary, profit, or gain derived from any source in India or abroad.
Gratuity
Gratuity is a payment made by an employer to an employee for services rendered, or in some cases, the value of goods and services provided. It is not considered taxable income. Gratuity can be paid as a lump sum or on a periodic basis (monthly, weekly, etc.)
It is a part of taxable income and it can be claimed as a tax deduction by the employee. Gratuity deduction is subject to various rules. For example, The gratuity must be paid in cash not exceeding ₹10 lakhs per annum.
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Process to Calculate In-Hand Salary from CTC
If you want to Calculate In-Hand Salary from CTC, we’ve mentioned simple steps that you can follow.
- You need to Calculate your gross salary. To calculate that deduct bonus, EPF, and Gratuity from the CTC.
- Once you have your gross salary, you need to calculate the income on which tax is levied.
- Calculate the taxable income from the total income.
- Calculate the in-hand salary by making all the calculations.
If you want to understand the calculation process better, here is an example for the same.
- If the CTC is ₹10,00,000
- The bonus received is worth ₹50,000.
- The gross salary calculated will be the Bonus amount subtracted from the total CTC. In this case, gross pay will be ₹9,50,000.
- Now, subtract the deductions made from the gross salary. If the total of EPF, PPF, and other deductions are equal to ₹60,000.
- In this example, on subtracting the deductions from the gross salary you will get ₹8,90,000.
- Therefore, the in-hand salary is ₹8,90,000.
Calculation of Cost to Company
- Gross salary: CTC – EPF – Gratuity
- Gratuity: (Basic salary + DA) × 15/26 × Number of years worked for the company
- Taxable income: Gross Salary – EPF/PPF Contribution – Tax-free Allowance – HRA – LTA – Health Insurance – Tax-saving Investments – Other Deductions
- Take-home Salary (Net Salary Post Taxes): Gross Salary – Income Tax – EPF Contribution – Professional Tax
Difference Between CTC and Gross Salary
CTC represents the total expenditure incurred by a company for hiring and retaining an employee. It encompasses the base salary and various perks such as EPF, HRA, medical insurance, gratuity, allowances, transportation services, low-interest loans, food coupons, and other benefits.
On the other hand, the gross salary is the amount remaining after deducting gratuity and EPF from the CTC. It is always higher than the take-home salary as it is calculated before any deductions. The gross salary includes bonuses, overtime pay, and additional benefits provided by the company.
Conclusion
CTC gross salary and in-hand salary are the three most important terms related to income. The income tax you pay, the allowance you get, and tax deductions at source or TDS are included in your CTC. You must know the basic salary that you received annually.
In this article, we talk about different terms related to your income and how you can Calculate In-Hand salary with CTC. We hope that the article helps you clear some of your confusion.
However, if you feel like you need help understanding these terms or calculating the in-hand salary you can contact Vakilsearch.
Vakilsearch also offers a salary calculator that is available online. You have to enter the CTC, bonus, and deductions and your in-hand salary will be calculated easily. Vakilsearch also has a team of experts who will be happy to help you with any legal procedures and application filling.
Frequently Asked Question
What is CTC, and how does it differ from the in-hand salary?
CTC stands for Cost to Company, encompassing the total compensation offered to an employee. In-hand salary is the amount an employee receives after deductions and taxes.
Are there standard components included in the CTC, and how do they impact the in-hand salary?
Standard components in CTC include basic salary, allowances, bonuses, and benefits. These impact in-hand salary by determining the taxable amount and deductions.
What are the statutory deductions that affect the calculation of in-hand salary from CTC?
Statutory deductions like Provident Fund (PF), Professional Tax (PT), and Income Tax impact the in-hand salary calculation.
Is it necessary to consider variable components such as bonuses and incentives in the in-hand salary calculation?
Yes, variable components like bonuses and incentives should be considered in the in-hand salary calculation as they contribute to the total earnings.
How does income tax impact the in-hand salary, and what are the relevant tax slabs to consider?
Income tax is deducted based on applicable tax slabs, which vary with income levels. Tax slabs determine the amount of tax to be deducted from the salary.
Are there employer contributions, such as provident fund and gratuity, that should be factored into the in-hand salary calculation?
Yes, employer contributions like Provident Fund and Gratuity impact the in-hand salary calculation as they are part of the CTC.
What allowances and perks can be excluded or included in the in-hand salary calculation?
Taxable allowances and perks like House Rent Allowance (HRA) are included, while non-taxable allowances may be excluded from the in-hand salary calculation.
Can employees negotiate certain components of the CTC to increase their in-hand salary?
Yes, employees can negotiate certain components like allowances or bonuses to enhance their in-hand salary within the overall CTC framework.
How frequently does the in-hand salary get disbursed, and are there deductions made at each pay cycle?
In-hand salary is typically disbursed monthly, and deductions like Provident Fund and Income Tax are made at each pay cycle.
Are there online tools or calculators available to simplify the process of calculating in-hand salary from CTC?
Yes, several online tools and calculators are available to simplify the process of calculating in-hand salary from CTC.
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