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A quick guide to understanding your salary structure

by Madhuri Boinwad
A quick guide to understanding your salary structure

We all know what a salary means but it is much more than that. A salary is given to the employee or worker who offers you their services. There are various components of a salary such as allowances, basic salary, gratuity, reimbursements, etc. Here is a list of a few items that play a major role in the contribution to the final structure of a salary of a worker or an employee – 

  • CTC- The abbreviation stands for Cost to Company. It is the first component of any salary. It is not the actual in-hand or final salary. It is a combination of allowances, basic salary, employee provident fund, etc.
  • Basic salary- As the name suggests, it is the salary in which no deduction or increment has been added. It is generally 35% to 50% of the total salary. The basic salary depends upon the position of the employee in an organization.
  • EPF- EPF stands for Employee Provident Fund. It is a contribution that is made every month by the employee as well as the employer. The minimum deduction for an Employee Provident Fund is 12 percent from the basic salary of an individual. The employer is not responsible for the employees who just started with EPFO or Employee’s Provident Fund Organization to contribute to their EPF. Rather, it’s given who makes the EPF contribution for the new employee for a period of three years. People can use the EPFO e sewa portal to know the details regarding EPF. For any help regarding the e-sewa portal click here.
  • Perquisites- These benefits are offered to an employee if he has a higher level of authority in the organization. These are mostly non-monetary benefits such as rent-free accommodation, usage of office cars for personal purposes, etc.
  • Different allowances- Allowances are the monetary benefits that are paid as an extra to the basic salary of an employee. The allowance is either fully taxed or partially taxed depending upon the type of allowance the employee gets. Some of the most common allowances are dearness allowance, medical allowance, leave travel allowance, house rent allowance, conveyance allowance, etc. 
  • Professional tax- The tax is imposed on the monthly salary of an employee by the state government. There is no fixed rate of the professional tax and it differs according to the states. However, an amount up to Rs. 2,500 per year can be charged as the professional tax. 
  • Gratuity- Gratuity is a monetary benefit given to an employee who has spent a minimum of five years in the organization and is about to retire from the company. According to the Payment of Gratuity Act, 1972, the lump sum gratuity amount is calculated at a rate of 4.81 per cent of the basic salary of an employee. 
  • Gross salary- The amount in which no deductions are made is the gross salary. It includes the amalgamation of basic salary, bonuses, dividends, etc. 

How to calculate your take home salary?

An individual can calculate the final salary after subtracting the TDS amount and making other deductions from the gross salary. You can also opt for Khatabook’s trustworthy calculator to help you calculate the in hand salary.

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