Your Take Home Salary (Net Pay) per Month:
No matter if you’re just starting your career or have years of experience, figuring out your in-hand salary is a common concern.
Using a simple salary calculator, you can easily see your take-home pay after various deductions like travel allowance, bonus, house rent allowance, provident fund, and professional tax.
Additionally, you might be curious about your potential salary growth over the next five to ten years. With the help of this Salary Builder, you can get valuable insights regarding your salary growth and compare your salary with your peers.
What is Salary?
A regular payment made to employees in exchange for the work performed by them is known as a salary. A salary is determined based on comparing similar positions in the same industry or region. A salary is paid at fixed intervals, generally on a monthly basis. It may be determined based on assessing the number of vacancies for a specific job role.
What is a Salary Calculator ?
A Salary calculator helps clarify your take-home pay, or net salary, which is your final pay after all deductions are accounted for. These deductions might include federal and state taxes, provident fund contributions, health insurance premiums, and others.
The calculator can also be invaluable in forecasting future earnings and understanding the impact of any changes in your job, such as a raise or bonus.
How Does a Salary Calculator Work?
A simple salary calculator has a formula used to calculate the salary considering various factors such as CTC or Cost to Company, bonus, and other such details.
The salary calculator helps you clearly understand the various deductions such as employee provident fund, insurance, professional tax and helps you calculate the in-hand or take-home salary.
Follow these steps to calculate the take-home salary. First, enter your CTC or Cost to Company and bonus (if any) to determine the gross salary:
| Cost to Company | 6,00,000 |
| (-)Bonus | 40,000 |
| Gross Salary | 5,60,000 |
| (-)Professional Tax | 2,400 |
| (-)EPF Employer Contribution | 20,500 |
| (-)EPF Employee Contribution | 20,500 |
| Total Deductions | 43,400 |
| Take-Home Salary | 5,16,600 |
- Let’s assume that the Cost to Company (CTC) is ₹6 lakh. If the employee receives a bonus of ₹40,000 for the financial year. The gross salary is ₹6,00,000 – ₹40,000 = ₹5,60,000. (Subtract the bonus from the CTC or Cost to Company).
- Gross salary = ₹6,00,000 – ₹40,000 = ₹5,60,000.
- After this, the next step is to reduce the professional tax of ₹2,400 for the financial year (professional tax may vary from state to state).
- After reducing the professional tax, you should subtract the contribution of the employer as well as the employee towards the EPF or the Employee Provident Fund.
- Assume that you have ₹20,500 as the yearly contribution by the employer and the employee towards EPF.
- The total deductions are ₹2,400 + ₹20,500 + ₹20,500. This equals to ₹43,400.
- The take-home salary is equal to gross salary minus the total deductions, i.e., ₹6,00,000 – ₹43,400 = ₹5,16,600.
- ₹5,16,600 will be the final take-home salary based on the salary calculator.
Summary:
- Enter the yearly CTC or Cost to Company
- Mention the bonus included in the CTC
- You get the Gross Salary from which the EPF and professional tax will be deducted
- Displays the final take home salary
How Does a Salary Calculator Work?
A salary calculator is a straightforward tool that requires some basic information about your earnings and deductions. Here’s how it typically works:
- Input Basic Information: You’ll start by entering your gross salary along with any additional earnings like bonuses or overtime pay.
- Deduct Taxes and Contributions: Next, the calculator will prompt you to input data about your tax rate, retirement contributions (like a 401(k) or provident fund), and any other deductions.
- Calculate Net Salary: With all the information provided, the calculator will compute your net salary, giving you a clear picture of your actual take-home pay.
What are Wages?
Wages are payments made for work done on an hourly basis. Unlike salaries, which are paid annually, wages are multiplied by the hours worked and then by the weeks in the year. They can be paid in various frequencies like hourly, daily, or monthly.
Different Pay Frequencies
There are different types of pay frequencies when it comes to paying a salary or a wage to an employee. These can range from daily, weekly, bi-weekly, monthly, or annually.
| Daily | You get paid everyday. Usually at the end of the day. Short-term contractors may pay this way. |
| Weekly | You get paid once a week, usually on a Friday. Weekly payments are relatively less common when compared to bi-weekly or semi-monthly. |
| Bi-Weekly | You are paid every two weeks, or around 26 times in a year. |
| Semi-Monthly | You are paid twice a month, usually in the middle of the month. (15th). Although, this may lead to inconsistency due to different number of days in different months. |
| Monthly | You are paid at the end of every month. This is the most cost-effective method of payment for employers. |
Understanding Gross Salary, Basic Salary, Net Salary, and CTC
Before we learn about the salary calculator, let us first understand the terms basic salary, gross salary, net salary, and CTC mean.
- Basic Salary: The fixed part of a salary before any extras are added or deductions are made. It remains consistent unlike other parts of the salary package.
- Gross Salary: This is what an employee earns annually before deductions. It includes bonuses, overtime, and holiday pay, but not taxes or other deductions.
- Cost to Company (CTC): The total amount a company spends on an employee in a year. It includes various benefits like housing allowance, conveyance, and bonuses. Under Cost to Company, there are various components. Some of these components are listed below:
Direct Benefits
- Basic Salary
- Conveyance Allowance
- Dearness allowance
- House rent allowance
- Medical allowance
- Leave travel allowance
- Vehicle allowance
- Telephone or mobile phone allowance
- Incentives or bonuses
- Special allowance
Indirect Benefits
- Food Coupons
- Company leased accommodation
- Interest-Free Loans
- Income Tax savings
- Health and life insurances premiums paid by the employer
Savings Contributions
- Superannuation benefits
- Employer provident fund
Net Salary
Net salary is also known as the take-home salary. The overall amount paid to the employee after all deductions such as provident fund and taxes have been deducted. The Net salary is typically lesser than the gross salary.
However, there is a chance that it is equal when the income tax is zero or if the amount payable to the employee is lesser than the mentioned government tax slabs. An employee’s gross salary would include benefits such as conveyance allowance, medical allowance, house rent allowance, etc.
Also Read: Top Highest paying jobs in the world & Top 25 Highest Paying Jobs in India
Difference between Gross Salary and Net Salary
The table below shows the differences between Gross Salary and Net Salary:
| Component | Gross Salary | Net Salary |
| Definition | The total earnings before any deductions are made. | The amount received after all deductions are subtracted. |
| Includes | Base pay, bonuses, overtime, allowances. | Only the amount left after deductions like taxes, provident fund contributions, etc. |
| Purpose | To indicate the total compensation before taxes and other deductions. | To show what the employee actually takes home. |
| Calculation | The gross salary of an employee is inclusive of benefits such as conveyance allowance, medical allowance, HRA or house rent allowance, etc. | Net Salary = Gross Salary – All deductions such as professional tax, income tax, pension, etc. It is also known as the take-home salary. |
| Variability | Can vary based on bonuses, overtime, etc. | Depends on the deductions applicable for that pay period. |
Also Read: Salary Prediction based on experience using Machine Learning
In-hand Salary
Now that we know more about the salary calculator, let us talk about what we mean by in-hand salary. It is the take-home pay and typically means the amount shown after all deductions are made.
In-Hand Salary = Monthly Gross Income – Income Tax – Employee PF – Other Deductions if any.
These deductions will vary depending on the CTC. The main deductions from the salary are provident fund, Income tax, and professional tax.
How to Calculate In-hand salary from CTC
- Calculate Gross Salary by deducting EPF and Gratuity from the CTC
- Calculate the taxable income by making the required deductions from the total income
- Income tax is calculated by adding the respective slab rate on calculated taxable income
- Finally, calculate the in-hand salary
Additional Considerations
- Miscellaneous Employee Benefits: Non-financial perks like healthcare, retirement plans, and company discounts can add significant value to your compensation package.
- Tax Regimes: In 2020, a new tax regime was introduced, offering lower rates in exchange for foregoing certain deductions, giving taxpayers flexibility in planning their taxes.
Conclusion
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Salary Calculator FAQs
To find your hourly wage, divide your annual salary by the number of work hours in a year (typically, this is your weekly hours multiplied by 52).
Yes, many salary calculators include options to factor in the cost of living based on geographic location, which can help you understand how far your salary will go in different areas.
Gross salary is your total earnings before any deductions, while net salary, or take-home pay, is what you receive after all taxes and contributions have been subtracted.
Yes, certain salary calculators provide industry-specific data to help you compare average salaries across different sectors and job titles.
The accuracy can depend on current tax rates, benefits deductions, and the specific inputs you provide, such as bonuses or other allowances.
To calculate the in-hand salary, you can use the following method:
Take home salary = Gross Salary – Income Tax – EPF – Professional tax
DA or Dearness allowance is the fixed percentage of your basic salary. It is fully taxable and does not have any exemptions. HRA is not calculated on the basis of basic salary and is partially taxable.
HRA or House Rent Allowance is the part of your salary that is provided to you by the employer towards your rented accommodation. You are eligible for claiming HRA if you are living in a rented property.
The monetary benefit given to the employee in return for the services rendered is known as gratuity. When a person completes at least five years in an organization, they are eligible to receive gratuity. There are certain cases such as disability due to accident or disease, or death, wherein the gratuity can be paid before completing five years.
A Form 16 is a certificate issued by an employer to an employee, specifying the amount of tax deducted at source from the employee’s salary. It contains details regarding the salary earned by the employee and the amount of tax to be deducted. Any taxpayer is entitled to submit their Form 16 in order to file for Income Tax returns during the financial year. It also acts as a proof regarding the income earned and tax paid to the government.
EPF or Employers Provident Fund is a sum investment made by both the employee and the employer towards the Employee Provident Fund. It is a lump sum amount that will come handy during the employees retirement benefit scheme. This amount will be deposited into the employee’s PF account. EPF and Employee’s PF contribution are two separate things.
According to the Employees Provident Funds and Miscellaneous Provisions Act, 1952, the employee and employer contribute an equal amount towards the EPF. It is mandatory for all Indian companies and one of the two methods of calculation is typically followed:
– Basic Salary > ₹15000/month – Company can choose to contribute either 12% of ₹15000 (₹1800), or 12% of the basic salary
– Basic Salary < ₹15000/month – 12% of the basic salary
Essentially, 12% is contributed by the employer and 12% by the employee.
In the Union Budget 2020, the new tax regime was introduced wherein the individual taxpayers have an option to choose between the old and new tax regime. The new tax regime offers lower tax rates if you are willing to give up on certain deductions or exemptions under the Income Tax Act of 1961.
