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Frequently Asked Questions
1. What is the salary and its components?
Salary is a compensation paid to an employee by his/her employer in return for the work by the employee.
2. What are the various components under salary?
Basic salary:
It is the primary and core element of a salary which makes about 40-50% of the total CTC. It plays an important role in defining other components, such as Provident Fund, Gratuity and ESI.
House Rent Allowance:
For salaried employees living in rented accommodation, HRA is one of the more effective tax saving tools. The amount you can claim as a tax deduction can’t be over 50% of your basic salary in metro cities and 40% of your basic salary in non-metro cities. Hence it makes up 40-50% of the basic salary.
Leave Travel Allowance:
Leave travel allowance reimburses employees for travel within the country. This is another component widely used because of the tax benefits it provides. An employee can claim a tax benefit on fair expenses paid to his/her family during holiday.
There are certain restrictions on what you can claim as a tax exemption:
- It only covers fair expenses (does not cover stay and food expenses).
- Travel must be within India
- What counts as an immediate family dependent on the employee is eligible
Special Allowances:
It makes up the rest of the salary, mostly smaller than basic salary and fully taxable. You may also take it into consideration for calculation of Provident Fund.
Bonus:
Bonus is a taxable part of an employee's salary. Organization provides bonus to its employees as a lump sum once a year based on the individual performance of an employee or the organization’s performance.
Employee Provident Fund:
EPF is an employee welfare scheme in which both the employee and the employer make investments each month. It is a platform which provides an opportunity to save a part of an employee's salary.
Professional Tax:
Taxes levied on income earned by salaried employees, including doctors, lawyers, chartered accountants, etc., by the state government. Each state government has different methods to calculate taxes. The maximum amount of tax payable is equal to 2500.
3. What is Current CTC Vs Expected CTC?
"Current CTC" stands for the current salary or compensation the candidate is receiving in their current job, while "Expected CTC" refers to the salary a candidate anticipates or requests from a potential employer. Employers often ask about expected CTC during job interviews to understand a candidate's salary expectations.
4. Are performance bonuses included in the CTC?
Yes, performance bonuses are considered part of the CTC and contribute to the overall compensation package.
5. Is employer contribution to provident fund (PF) included in the CTC?
Yes, employer PF contributions are factored into the CTC calculation.
6. Do fringe benefits impact the CTC?
Yes, perks like medical insurance, transportation, and accommodation allowances are included in the CTC.
7. How do variable pay or incentives affect the CTC?
Variable pay is considered part of the CTC but may vary based on individual and company performance.
8. Are employee stock options (ESOPs) included in the CTC?
ESOPs are generally not included in the CTC as they are contingent on market conditions and individual choices.
9. How does statutory deduction like Professional Tax influence the CTC?
Deductions like Professional Tax are typically subtracted from the gross salary before calculating the CTC.
10. Is gratuity included in the CTC?
Gratuity is not part of the monthly CTC but may be included in the overall CTC as a long-term benefit.
11. How does the employer calculate the cost of employee benefits like health insurance?
The cost of health insurance is factored into the CTC based on the premium paid by the employer.
12. Are travel allowances considered in the CTC calculation?
Yes, travel allowances or reimbursements are part of the CTC if provided by the employer.
13. Does the employer's contribution to Employee State Insurance (ESI) impact the CTC?
Yes, the employer's contribution to ESI is part of the CTC calculation.
14. How are increments accounted for in the CTC?
Increments contribute to the CTC, as they result in an increase in the basic salary and other applicable components.
15. Is the cost of training and development included in the CTC?
Training costs may be included in the CTC if they are explicitly mentioned as part of the employment agreement.
16. How does leave encashment affect the CTC?
Leave encashment is generally included in the CTC, providing a value for unused leave days.
17. Do contributions to the Employee Provident Fund (EPF) impact the CTC?
Both employer and employee contributions to EPF are factored into the CTC.
18. Are there any tax implications on the CTC for employees in India?
The CTC itself is not taxed, but components like salary are subject to income tax.
19. How do allowances like food and special allowances factor into the CTC?
Allowances, including food and special allowances, contribute to the overall CTC.
20. Can the CTC change during the employment period?
The CTC may change due to performance-related bonuses, salary increments, or changes in benefits.
21. Is the CTC different from the take-home salary?
Yes, the take-home salary is the amount an employee receives after deductions; CTC is the total cost incurred by the employer.
22. Are employee loans considered in the CTC calculation?
Employee loans may impact the take-home salary but are not typically part of the CTC.
23. Is the employer's contribution to the National Pension Scheme (NPS) part of the CTC?
Yes, the employer's contribution to NPS is considered in the CTC.
24. How does the CTC vary across different industries in India?
CTC can vary based on industry standards, company policies, and the nature of the job.
25. Can employees negotiate specific components of the CTC?
Yes, employees may negotiate certain components of the CTC, such as salary structure, allowances, or performance bonuses.
26. What are the two kinds of CTC benefits in India?
In India, CTC (Cost to Company) typically includes direct benefits like basic salary, house rent allowance, and other allowances. Indirect benefits encompass contributions to provident fund, gratuity, medical insurance, and other non-monetary perks provided by the employer.
27. What is a monthly salary calculator?
A monthly salary calculator or CTC breakup calculator is an online tool that calculates your in-hand salary based on cost to the company (CTC) or the total salary package, after all the deductions.
It will show you different components of salary and various deductions, such as Provident fund, professional tax, employee insurance, and the take-home salary.