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| Everything About Salary | Like (1285) |
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Whatever you call it – salary, compensation, package, this is the most important
factor for leaving a company for nearly 50% people, according to a survey by
DataQuest, a well known IT Magazine. When you get an offer, you know that your
package is 3.6 Lakhs per annum. You probably know that you are not going to get
3,60,000/12 = 30,000 k per month in
hand. But do you know what all the
company has included in the CTC (cost to company)? CTC is a loosely used term for the amount of expenses the incurred by
company on an employee in a particular year. CTC would generally include the
following cash, non cash and perquisite-based components. For more details about CTC, please
click here In this article, we wish to educate you about the important components of your annual salary, how the take home (what you get as cash at the end of the month) is calculated and how you can maximize it. Essential components of your salary:- 1. Basic Salary - The basic salary is used to calculate other components (like HRA, PF etc.) of the salary. Basic salary is always taxable and hence ideally is not kept more than 40% of the Cost to Company (CTC) but then keeping it very low may also cause the reduction in other constituents of the salary. It is up to the finance department of the company to decide the amount of basic salary. 2. House Rent Allowance (HRA) - House Rent allowance is a very crucial part of the salary structure. It is usually (but not necessarily) 40 - 50% of the basic salary. Out of the HRA received during any financial year, the least of the following is exempt from the income (hence tax)
3. PF Contribution – Provident Fund is a you collect for your old age or maybe some emergency. It has a statutory requirement that a minimum of 12% of the basic is deducted and deposited in the Employee's Provident Fund. As an incentive from the government to encourage you to save for future, Indian government gives an interest at the rate of 8.5% per year on your money. The employer also makes a matching contribution to the PF account. Here too a balance needs to be maintained, with the basic salary. The higher the PF contribution, the more the reduction in take-home salary. 4. Special Allowance – Individual company can choose to provide you special allowances (all exempted from tax based on only actual bills) for expenditure on things like phone, petrol, books, food and grocery (using Sodexho coupons) etc. Remember “the Ticket Restaurant” or “Sodexho “ word written on the gate of grocery stores and restaurants. 5. Medical Reimbursement – All your medical bills (with a maximum of up to Rs 15,000 a year) will be exempted from tax under this part of your salary. This will be as per actual bills submitted and the balance will be taxable for the year. So, save all your medical bills! 6. Transport/Conveyance allowance – It is usually fixed and is exempt up to Rs 800 per month without bills. 7. Leave Travel Allowance - The amount paid by the employer to you and your family for leave travel to any place in India or for travelling to any place in India after retirement. This can be claimed twice in the block of 4 calendar years (current block is Jan 2006- Dec 2009). This amount is exempt from tax, subject to a maximum (usually the amount offered by the employer). If the journey is by rail, the amount of air-conditioned first class rail fare by the shortest route or the amount spent, whichever is less, is not taxable. If the travel is by air, then the economy class fare is not taxable. 8. Other allowance – Rest of your salary comes under totally taxable allowance. It is usually smaller than the basic salary. This is the part which actually cannot be treated as any other constituent of the salary and is usually completely taxable. 9. Employee Stock Options – The stock options are apart from the monetary compensation discussed up till now. These are basically designed for retaining employees in the company and are commonly known as ESOP. The company gives you either free shares or gives you an option to buy shares at a discounted price if the employee decides to stay with the company for a fixed period. All stock options allotted to you may not be yours immediately, there may be catches about the vesting period of your options. 10. Bonus - It is a part of your CTC, which is usually given once a year in lump sum based on your and the company’s overall performance. It is totally taxable as a part of the salary. In some companies this amount is also variable depending on your performance and you’re meeting your Key Result Areas. 11. Gratuity - It is the lump sum amount paid by the company, when you either retire or resign from the company. Of course, you need to have worked in the company for at least 5 years. Gratuity = Last drawn salary x 15/26 x No. of years of service" Your last drawn salary will comprise your basic + DA. For computation of gratuity, your service period will be rounded off to the nearest full year. Gratuity up to Rs 350,000 is exempt from taxes. Income Tax Slabs
2011–2012 for Men and Women
You can reduce your tax by investing your money as indicated in our article about saving tax and maximizing your in hand cash Note: Some companies include some components into your CTC to inflate the figure of your annual salary. These components are not directly payable to you or are paid after a delayed period and under some clauses.
For calculating your tax liability, you can use this tax calculator. Happy Job Hunting! Also Read Interview with T V Mohandas Pai Learn the ABCD of success from NIIT Marketing Head Sobha Ramani Use Better Tools to Be a Better Student in 2011 The Attitude of Success: It’s All in Your Head Pay attention to the things that bring you success |
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