Lets look at the below examples taken from www.allindiaitr.com/salary-income-guide
Please go through the below tables where most of us are familiar with all the terms.
Components of CTC | Amount (in Rs) |
Basic Salary | 2,50,000 |
Special Allowance | 1,00,000 |
HRA | 90,000 |
Medical Reimbursements | 15,000 |
Medical Insurance for you and your family | 5,000 |
PF + PT | 30,000 |
Performance bonus
(between 50,000 to 75,000 based on performance) | 75,000 |
Total CTC | 5,65,000
|
Components of takeaway salary | Amount(in Rs) |
Basic Salary | 2,50,000 |
Special Allowance | 1,00,000 |
HRA
(less exemption on production of rent receipts) | 60,000 |
Bonus received | 75,000 |
Total Salary | 4,85,000 |
Less: PF + PT | 30,000 |
Less: Tax Payable* | 8,240 |
Take Home Salary | 4,46,760 |
Total Salary for tax computation | Rs.4,85,000 |
Less: Deduction u/s Section 80C | Rs.1,50,000 |
Less: Deduction u/s Section 80D | Rs. 5,000 |
Taxable Salary | Rs.3,30,000 |
Tax payable (includes cess; excludes interest payable) | Rs.8,240 |
Now that we have understood the components and how tax payable is calculated, let us see other components of Deductions. The list goes below:
U/S 80C- Max limit 1,50,000 (LIC, Mutual Funds, Education of dependants, Principle repayment of house loan, VPF, PF, NSC, FD, NSS, ELSS & PPF)
U/S 80D- Max limit 75,000 (Medical Insurance premium)
U/S 80DD- Max Limit 1,25,000 (Handicapped Dependant)
U/S 80E- No Max Limit (Interest on Education Loan)
U/S 24B- Max Limit 2,00,000 (Interest on Housing Loan)
U/S 80U- Max Limit 1,25,000 (Severe Physical Disability)
U/S 80G- No Max Limit and exemptions are 50% & 100% (Donations)
U/S 80TTA- Max Limit 10,000 (Interest on Saving Account)
The Professional tax (PT) has slab rates for every state.
Provident fund = Basic pay * 8.33 = Employees contribution
+
Basic pay * 3.67 = Employers contribution
ESI = Gross Salary * 0.75% = Employees contribution
+
Gross Salary * 3.25% = Employers contribution
HRA is calculated based on the least of the below three:
Actual HRA give by company
Rent paid - 10% of Basic Salary
40% of Basic Salary
Gratuity is calculated based on the lesser of the below two (Registered):
Registered with Gratuity Act = 20,00,000 non taxable
Last drawn basic salary + Dearness allowance * no. of years of service * 15 days/26 days
Gratuity is calculated based on the lesser of the below two (Unregistered):
Unregistered with Gratuity Act = 20,00,000 non taxable
Average basic salary + Dearness allowance * no. of years of service * 1/2
Performance bonus tax need to be calculated from tax on salary slab rates. Lets say, the tax slabs are as below:
Up to INR 2,50,000 = 0
2,50,000 to 5,00,000 = 5%
5,00,000 to 7,50,000 = 10% for 2021
Hence, Bonus amount * Slab rate = Tax amount and this will be added to the current tax payable. This suggests that one will be paying additional tax whenever one receives a bonus.
Important calculation in the whole process is to calculate the IT on salary from the above given slab rates.
(Lower tax bracket 2,50,000 - Taxable Salary) * 5% + Tax rebate = IT
IT + (IT * 4% Education Cess) + Bonus tax = Total Tax payable.
Before we conclude, lets take a look at the most basic component, Gross salary.
Gross Salary/CTC = Basic pay + Conveyance + HRA + Medical allowance Etc.
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