Salary Slip components and Deductions

Taking up your first job or switching job and you are confused with terms like gross salary, CTC, take home salary , then these standard salary components and deductions will help in better understanding of your offer letter. 

A. Basic salary + Allowance in salary

Basic Salary: It is the basic part of your salary. It is a fixed component one gets every month and which is used to calculate other components like HRA ,PF etc.

Dearness allowance: It is paid to government employees, PSU employees and pensioners in India. It is calculated as percentage of basic salary. It is linked to consumer price index.

HRA: House rent allowance is paid to individual as compensation for rent paid by him for rented accommodation.

Conveyance/Transport allowance : This allowance is paid to individual to meet one's expenses in travelling from his place of residence and workplace. Amount upto Rs 1600 per month is exempted from taxation. For orthopedically handicapped the exemption limit is Rs 3200 per month.

Fuel allowance  : This allowance is paid to individual to meet his fuel expenses in travelling from his place of residence and workplace. It is exempted from income tax, if fuels bill are provided against the same. Individual's can either claim conveyance or fuel allowance.

Medical Allowance: This allowance is paid to individual to meet his expenses for medicines and medical treatment, subjected to Rs 15000 annually. The entire amount is taxable unless bills are provided.

Meal coupons: Companies offer option of food coupons to employess.

Leave Travel Allowance: This allowance can be claimed by individual for travel to locations within India. Amount is deducted from salary and paid when amount is claimed by the individual or unclaimed balance is paid every two years. Unclaimed amount is taxable.

Also read: LTA Rules in India

Bonus: Individual is eligible for bonus for minimum of 8.33% of the salary and maximum of 20% of salary.

Stock options: Companies offer RSU(restricted stock units) or ESOP(employee stock options). Listed and unlisted companies offer even phantom stocks , which work same like normal stocks but are not listed on any sock exchange. Value of each phantom stock is decided by company based on company performance.

Variable allowance/salary: This allowance is linked with individual and company performance. Percentage of variable pay will depend on your appraisal.

Special/Adhoc allowance: This allowance is paid for unexpected expenses.

B.Salary Deductions 
  1. Contribution to superannuation fund: This amount may be deducted from salary to contribute to employer’s superannuation fund pool. Pension payments to the retired employees is made through this fund.

  2. Health insurance premiums: This amount may be deducted from salary to pay for health insurance offered by the employer. Generally this amount is not deducted from salary as health insurance is part of benefits offered by the employer.

  3. Provident fund contribution: It is the amount which is deducted from your salary as contribution to provident fund. 12% of basic salary is contributed by from individual salary, while another 12% is contributed as employers share.

  4. Income Tax: Income Tax is deducted from salary based on your  taxable income. By proper tax planning you can reduce income tax.  Also read: Income Tax Slabs in India

  5. Professional tax: Professional tax is deducted by the employer and paid to state government.

C.Other benefits

Companies offer benefits like  Club membership, magazine subscription, life insurance, accidental insurance ,medical insurance and major medical expenses reimbursement etc.

D.How to caclulate Gross Salary

Gross salary is calculated after adding basic salary component, allowances and other benefits. It is the salary calculated before reducing deductions from total salary.

 

Gross Salary= Basic salary + allowances

E. How to calculate Take home salary or Net salary

You can calculate your Take home or net  salary  is the amount deposited in your salary account after reducing deductions from gross salary.

 

Net salary = Gross salary – Deductions.

Some companies try to keep basic salary componet at minimum to increase your take home salary. Lower basic salary automatically  reduces your PF contribution ,HRA etc. Higher PF contribution will be helpful in building up your retirement corpus.

F.Cost to the company (CTC):

CTC stands for cost to the company, it is total expenses incurred on employee in providing salary and other benefits. 

Cost to the company (CTC)= Gross salary + other benefits offered by employer.