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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.
Salary incorporates different components. Here is a list of the most commonly used salary components:
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.
What is a monthly salary calculator?
It will show you different components of salary and various deductions, such as Provident fund, professional tax, employee insurance, and the take-home salary.