Generally, tax is calculated either on the amount of your employer’s legitimate HRA benefits or annual rent paid minus 10 per cent of your basic salary and dearness allowance, whichever is lower. HRA, to some extent, is exempted from tax as well. This also varies from one company to the other and between the public and private sectors. In metropolises, like Delhi, Mumbai, Kolkata and Chennai, it typically makes up to 50 per cent of employees’ base salary, while it makes up to 40 per cent in other Tier 2 and 3 cities. House Rent Allowance (HRA)Įmployees receive HRAs as reimbursement for their rented accommodation. Employees get varying DA components, depending on the rate of inflation in their local geographical area. Since it is computed as a percentage of basic salary, this portion of take-home pay is also taxable.
Dearness Allowance (DA)Ĭompensation that is granted to employees to assist in counteract inflation and the growing cost of living is called dearness allowance. The basic salary is low because most employers try to keep their employees’ tax obligations to the least by maintaining a low basic salary and offering non-taxable benefits or other elements to lessen taxes. However, this is not the only amount one may expect to see in the salary slip because in-hand salary comprises many other inclusions such as dearness allowance, house rent allowance, conveyance allowance, medical allowance and other variables. When determining whether an individual is subject to taxation and which tax bracket they fall in, the income tax department takes this sum into account. Additionally, it is the portion of one’s salary that is taxable. The most significant part of an individual’s pay, the basic salary, often accounts for 35 per cent to 40 per cent of the total salary. Components of a salary slip Image: Courtesy of Mikhail Nilov/ Pexels Inclusions Basic salary It can be inclusive and exclusive of variables, depending on company policies. Gross salary - It is the monthly salary of an individual before any deductions are made from it.Ĭost to company - CTC is the total salary of an individual which includes all the monetary benefits provided to the employee by the employer.
Basically, it is the amount paid to the employee after all business deductions, including Employee Provident Fund (EPF), Professional Tax (PT) and Tax Deductible at Source (TDS). It is commonly referred to as take-home pay or in-hand salary. Net salary - The portion of a person’s paycheck that is deposited into their bank account each month is called net salary. To get a basic understanding of a salary slip, one must know about three types of salary - net salary, gross salary and cost to company (CTC).
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