A salary refers to the regular payments made by an employer to an employee for their work. It is outlined in the employment contract, which details the salary and any additional components.

What is a Salary Calculator?

A salary calculator is a simple tool that helps individuals calculate their net take-home salary, both monthly and annually, along with deductions like professional tax, provident fund, and others.

To use the calculator, an employee must enter details such as CTC, bonuses, monthly professional tax, employer PF, employee PF, and any additional monthly deductions in the provided fields to get the final result.

What are the Components of the Salary Structure?

• Basic Salary: Basic salary generally accounts for 40% to 50% of the total earnings. It is determined based on the employee’s experience, skills, and qualifications. It is a fixed component of the Cost To Company (CTC) package.
• House Rent Allowance (HRA): HRA is given to employees who live in rented accommodations. It is eligible for partial or full exemption from taxes under Section 10(13A) of the IT Act 1961, unless the employee lives in their own property.
• Leave Travel Allowance (LTA): LTA is a travel allowance provided by the employer to cover travel-related expenses. Employees need to submit travel proof to claim this allowance.
• Professional Tax: A tax levied by the state on employment, with a maximum annual charge of Rs 2,500 per financial year.
• Special Allowance: Special allowances are taxable components of the salary that are fully taxable.
• Bonus: Employers may offer bonuses as performance-based incentives to employees.
• Employee Contribution to 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 tax deductions under Section 80C.

How Do Salary Calculators Work?

To calculate the take-home salary, an individual needs to enter the required details such as CTC, bonuses, professional tax, and other deductions.

Here's an example to understand:

Let’s assume your CTC is Rs 5 lakh, and your employer gives you a Rs 50,000 bonus for the year. Thus, the total gross salary is Rs 5,00,000 – Rs 50,000 = Rs 4,50,000.

Gross Salary = Rs 5,00,000 – Rs 50,000 = Rs 4,50,000

• The salary is then reduced by the professional tax of Rs 2,400 annually (as an example).
• Next, contributions to the Employee Provident Fund (EPF) are deducted, both the employer’s and the employee’s portion.
• The EPF contribution is based on a salary cap of Rs 15,000 per month, which is 12% of Rs 15,000, equaling Rs 1,800 per month or Rs 21,600 per year.
• Both the employee and the employer contribute Rs 21,600 annually towards the EPF (Note: 8.33% of the employer’s contribution goes to the employee’s pension scheme).
• Additionally, assume the employee has an insurance deduction of Rs 2,000 annually.

Total Deductions = Rs 2,400 + Rs 21,600 + Rs 21,600 + Rs 2,000 = Rs 47,600.

Take Home Salary = Rs 4,50,000 – Rs 47,600 = Rs 4,02,400

Benefits of Salary Calculator in India

• Quick Results

IPOtank's salary calculator provides results within seconds.

• Identifies Changes

The calculator helps employees identify changes in their salary structure, such as adjustments due to bonuses or deductions.

• Clear Breakdown

The calculator gives a clear breakdown of the different salary components, such as basic salary, bonuses, and deductions, allowing for better understanding.

• Provides Estimates

The IPOtank's CTC calculator helps estimate monthly and annual deductions, as well as the employer's and employee's contributions to EPF.