You know a different happiness thrills us when we listen to incoming month’s end salary and “salary has been credited” message to our phone. Don’t worry we will not talk about what happens after your whole salary goes into payment of your outstanding bills. Also, whenever, we get a job offer from the company we are offered a particular salary package i.e. CTC. However, most of us don’t bother much to calculate the in hand salary from CTC because of the offered CTC’ happiness, which appears big enough to satisfy our needs.
But, knowing the math to calculate the in hand salary from CTC can help you understand the whole salary structure and help you in your financial & tax planning, which can ultimately increase your in hand salary.
Typical salary structure components
Basic Salary – It is the base salary that an employee receives from their employer before any extras added to or payments deducted from the total salary. It is a fixed salary that is paid out regardless of employees meeting their goals.
House Rent Allowance (HRA) – It is simply the amount received in salary towards the rent payment.
Ex gratia – Ex gratia is payment made by the employer at its own discretion under no obligation of any law.
Special allowance – Special allowance is nothing but the remaining part of the total salary which does not fit under any head of the salary.
Cost to Company (CTC) – It is the total salary package i.e. gross income paid to the employee by the employer. It is basically the total expenditure incurred to the company yearly on an employee.
Variable Performance Pay – It is often given to employees as a reward or bonus to recognize his/her contribution above and beyond their normal job requirements towards company profitability and productivity.
Usual salary structure components (fixed) of salary of an Employee
Basic Salary – It is usually 45% to 50% of your CTC.
House Rent Allowance (HRA) – Usually 30% of your basic salary
Employer’s contribution to your PF – 12% of your basic salary
Food Coupons (Like Sodexo Card, etc.) – Usually INR 1,250/- per month
Ex gratia or Special Allowance – Remaining part of total salary
Note – We have not considered variable performance pay (bonus) as part of salary in the example because this amount is not fixed and varies as per the discretion of the employer.
Let’s take an example for a better understanding of salary structureto calculate the in hand salary from CTC
Say for e.g., you have been recently offered with CTC of INR 9 Lakh per annum (fixed), then let’s see the break-up of salary –
CTC offered by the employer = INR 9 Lakh per year;
CTC is summation ofbelow components –
Basic Salary = 50% * 9 lakh = INR 4.5 Lakh
HRA = 30% * 4.5 lakh = INR 1.35 Lakh
Employer’s contribution to your PF(#) = 12% * 4.5 lakh = INR 0.54 Lakh
Food Coupons (Like Sodexo, etc.) = INR 1,250 per month * 12 = INR 0.15 Lakh per year
Ex gratia or Special Allowance = 9 lakh – 4.5 lakh – 1.35 lakh – 0.54 lakh – 0.15 lakh = INR 2.46 Lakh
(#)Provident Fund (PF) – It is the government-managed retirement savings scheme for employees wherein an employee and also his/her employer have to deposit 12% of employee basic salary mandatorily in employee PF account.
Now, what would be your In hand take-home salary? For that, we have to take out some certain components from your total salary (CTC) which are as follows –
**Please note that we have not considered any of your other investments while calculating the income tax. You may refer to this article on “” to know what investments can bring you tax savings.
We already know the PF Contributions & Food coupons amount, for HRA tax exemption let’s see below calculation –
HRA tax exemption which will be least of the following 3 amounts –
Actual received HRA = INR 1.35 Lakh
50% of (Basic Salary) if living in metro cities or 40% for non-metro cities (Considering you live in a metro city like Mumbai, Delhi, Chennai, or Kolkata, etc.) then 50% * Basic salary = 50% * 4.5 lakh = INR 2.25 Lakh
Actual paid rent minus 10% of (Basic Salary) – For e.g. Say your monthly rent is INR 8,000/- then Actual paid rent for a year would be INR 8000 * 12 = INR 96,000/-. This component would be equal to INR 0.96 lakh – 10% * 4.5 lakh = INR 0.51 Lakh
Total Income tax under old tax regime = 12,500 + 25,000 + 14,400 = INR 51,900/-
Additional Health & Education Cess (4% of Income Tax) = 4% * 51,900 = INR 2,076/-
Total Tax Liability including Cess = 51,900 + 2,076 = INR 53,976/-
In hand Salary (When Old Tax Regime selected) = CTC – PF (Both employer’s & employee’s contributions) – Food Coupons – Tax liability including cess
= 9 lakh – 1.08 lakh – 0.15 lakh – 60,008 = INR 7,16,992/- per year (INR 59,749/- per month)
In hand Salary (When New Tax Regime selected) = CTC – PF (Both employer’s & employee’s contributions) – Food Coupons – Tax liability including cess
= 9 lakh – 1.08 lakh – 0.15 lakh – 53,976 = INR 7,23,024/- per year (INR 60,252/- per month)
Summary of Salary Package in below table
Particulars
Amount (INR)
Basic Salary
INR 4,50,000/-
PF (Employee’s Contribution)
INR 54,000/-
PF (Employer’s Contributions)
INR 54,000/-
Food Coupons
INR 15,000/-
HRA
INR 1,35,000/-
Ex-Gratia or Special Allowance
INR 2,46,000/-
Total Amount (CTC)
INR 9,00,000/-
Tax liability including cess (Old tax regime)
INR 60,008/-
Tax liability including cess (New tax regime)
INR 53,976/-
HRA Tax Exemption
INR 51,000/-
In hand salary (Old tax regime)
INR 7,16,992/- per year (INR 59,749/- per month)
In hand salary (New tax regime)
INR 7,23,024/- per year (INR 60,252/- per month)
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In-hand salary or the basic pay is a part of CTC that is left after all the deductions are done and allowances are removed. It is usually 40-50% of the total CTC.
Figure out the take-home pay by subtracting all the calculated deductions from the gross pay, or using this formula: Net pay = Gross pay - Deductions (FICA tax; federal, state and local taxes; and health insurance premiums).
What will be take home salary for 50 lakhs? So if your annual CTC is Rs 50 lakh, you can expect to get an annual take home of 35 lakh or Rs 2.9 lakh per month.”
The basic pay is usually 40% of gross income or 50% of an individual's CTC. Basic salary = Gross pay- total allowances (medical insurance, HRA, DA, conveyance, etc.)
If you make $30,000 a year living in the region of California, USA, you will be taxed $4,985. That means that your net pay will be $25,015 per year, or $2,085 per month. Your average tax rate is 16.6% and your marginal tax rate is 25.2%.
Different factors impact your net pay, such as your tax filing status, the number of dependents, federal and state income taxes withheld, as well as Social Security and Medicare taxes. Various deductions, such as for retirement, health insurance and a flexible spending account (FSAs) will also reduce your net pay.
Here are some formulas to calculate the CTC and your take-home salary: CTC = gross salary + gratuity + PF or CTC = basic salary + benefits + PF. Gross salary = basic salary + house rent allowance + additional allowances. Net salary = gross salary–professional tax–public provident fund–income tax.
Salary breakup is the analysis of gross salary or cost to company (CTC) to get each component of salary. The in-hand salary of an employee is usually different from the gross salary.
50k is not fresher salary. If you're getting that congrats. You're in top 10% of the country if you make 1L a month. People survive on 15k also – lifestyles change.
Tax deductions: With a monthly salary of ₹18,800, the annual income is below the taxable limit of ₹2.5 lakhs. Therefore, there will be no income tax deductions. So, with a CTC of ₹2.4 lakhs per annum, the estimated In-Hand Salary would be around ₹17,600 per month.
If you make ₹ 4,000,000 a year living in India, you will be taxed ₹ 1,533,000. That means that your net pay will be ₹ 2,467,000 per year, or ₹ 205,583 per month. Your average tax rate is 38.3% and your marginal tax rate is 43.2%.
In this case, tax is based on the employee's gross salary and the employer is required to deduct TDS from an employee's salary. However, the basic salary of an employee should be at least 50-60% of their gross salary. For example: Let us assume Mr.
Your marginal tax rate or tax bracket refers only to your highest tax rate—the last tax rate your income is subject to. For example, in 2022, a single filer with taxable income of $100,000 will pay $17,836 in tax, or an average tax rate of 18%.
“At most companies, there are 26 bi-weekly payments in a year. A $10,000 raise divided by 26 equals approximately $385 before taxes. But wait, don't make imaginary plans just yet,” she says. That's because you also have to account for taxes, especially if your raise bumps you into a new, higher tax bracket.
For instance, if you have a $60,000 salary and receive a 3% raise, you'll net about $24 more per week after taxes. Doesn't exactly look like the more money you were waiting for, does it?
50k is not fresher salary. If you're getting that congrats. You're in top 10% of the country if you make 1L a month. People survive on 15k also – lifestyles change.
Similarly, the income bracket above Rs 10 lakh per annum, as a proportion of total taxpayers, has grown from 5.6% in FY15 to 12.8% in FY21. The largest single-year jump in this category was seen between FY20 and FY21, from 54 lakh taxpayers to 81 lakh taxpayers in the above Rs 10 lakh per annum income bracket.
An Entry Level LPA with less than three years of experience earns an average salary of ₹2.3 Lakhs per year. A mid-career LPA with 4-9 years of experience earns an average salary of ₹3 Lakhs per year, while an experienced LPA with 10-20 years of experience earns an average salary of ₹3.1 Lakhs per year.
If you make ₹ 90,000 a year living in India, you will be taxed ₹ 10,800. That means that your net pay will be ₹ 79,200 per year, or ₹ 6,600 per month. Your average tax rate is 12.0% and your marginal tax rate is 12.0%. This marginal tax rate means that your immediate additional income will be taxed at this rate.
If you earn more than 50 lacs a year you're in the top 0.3% of India. Above 25 lacs, you're in the top 1.2% of India. Only 3.2% of Indians earn above 15 lacs a year. Wealth is so unevenly distributed.
If you make ₹ 4,500,000 a year living in India, you will be taxed ₹ 1,749,000. That means that your net pay will be ₹ 2,751,000 per year, or ₹ 229,250 per month. Your average tax rate is 38.9% and your marginal tax rate is 43.2%.
Income tax data shows that only 131,000 Indians earned above ₹1 crore annually in FY21, roughly 0.01% of the country's population. A 2020 Bloomberg report said India's top-paid 1% earn ₹55 lakh and above. To be sure, many businesses and self-employed individuals under-report incomes to avoid higher taxes.
For a person who earns 20lakhs per annum with an asset of 1 crore might be rich from the view point of one who earns less than that. Whereas, for this person who is capable enough to possess assets worth ₹ 1 crore will consider the other one who owns assets worth more than this figure to be "rich".
Earning ₹2 lakhs per month is a significant income, and it requires a combination of hard work, dedication, and a well-planned strategy. While there are no shortcuts to success, there are several ways to achieve this level of income in India.
As of 2022, the average salary in India is around Rs.5.7 lakh per annum (INR 47500 per month). However, this can vary greatly depending on various factors, such as industry, job type, location, and experience.
The average Indian salary ranges between 2,250 and ₹70,000 per month for an unskilled worker under the MWA, while the median salary in India or what half the population earns, is just 377.82 USD or ₹29,400 per month (pm) with some industries paying high salaries in India as compared to others.
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