What is a Salary Calculator?

A salary calculator is an easy-to-use tool that helps you calculate your take-home salary on a monthly and annual basis, along with a clear breakdown of total deductions.

An employee needs to enter their CTC, bonus included in CTC, monthly professional tax, employer PF, employee PF, and any additional monthly deductions in the respective fields to calculate the final result.

What are the Components of the Salary Structure?

• Basic Salary: Basic salary usually makes up about 40% to 50% of an employee’s total salary. It is determined by factors such as experience, skills, knowledge, and qualifications, and is a fixed part of the Cost to Company (CTC).
• House Rent Allowance (HRA): It is a part of the salary provided to employees who live in rented accommodation. HRA is partially or fully exempt from tax under Section 10(13A) of the Income Tax Act, 1961. However, if the employee does not live in a rented house, the HRA becomes fully taxable.
• Leave Travel Allowance (LTA): An employee may also receive Leave Travel Allowance (LTA), which is provided by the employer to cover travel costs. To claim LTA, the employee must submit valid travel proof.
• Professional Tax: It is a tax on employment levied by the state government. Please note that the maximum professional tax a state can charge in a financial year is ₹2,500.
• Special Allowance: An employee may receive a special allowance as part of the salary structure, and this allowance is fully taxable.
• Bonus: An employee may receive a performance incentive from the employer, which is referred to as a bonus.
• Employee Contribution to the Provident Fund: Under the Employee Provident Fund (EPF), both the employer and the employee contribute 12% of the employee’s basic salary every month. The employee’s contribution is eligible for deduction under Section 80C.

How Do Salary Calculators Work?

For calculating the take-home salary, an individual must enter the CTC bonus, PF, professional tax, deductions, etc.

Understand with an example here.

Assume your Cost to Company (CTC) is ₹5 lakh and your employer pays you a bonus of ₹50,000 for the financial year. In this case, your total gross salary would be ₹4,50,000, as the bonus is deducted from the CTC.

• From the gross salary, a professional tax of ₹2,400 per year is deducted (for example).
• Next, contributions made by both the employer and the employee towards the Employee Provident Fund (EPF) are deducted.
• EPF contributions are calculated on a maximum salary limit of ₹15,000 per month. This works out to 12% of ₹15,000, which is ₹1,800 per month or ₹21,600 per year.
• Let us consider an annual EPF contribution of ₹21,600 made by the employee, with the employer also contributing the same amount. Note that 8.33% of the employer’s contribution is directed to the Employee Pension Scheme.
• Next, let us assume the employee has an annual deduction of ₹2,000 towards employee insurance.