Gross Salary Calculation

The amount received when deducting gratuity and also the employee provident fund (EPF) from cost to Company (CTC) is termed as Gross salary. In different words, Gross salary is that the quantity paid before deduction of taxes or deductions and is inclusive of bonuses, over-time pay, holiday pay etc.

 

The EPF, in India, is an employee-benefit scheme suggested by the Ministry of Labour that provides workers with an income throughout their retirement years. The EPFO or worker Provident Fund Organization has the authority to mandate policies on EPF, pension, and insurance schemes. However, the leader is needed to contribute a minimum of 12% of the employee’s salary towards his/her EPF.

 

An worker also can withdraw the complete amount accumulated in his/her PF account at the time of retirement, that is once the worker attains the age of fifty five years. Though, he or she can also withdraw the PF amount in case of the following situations:

 

• If the employee is migrating abroad
• In case the employee is retired due to permanent disability
• Termination of services

 

PF calculated on Gross Salary

The calculation of Gross pay for the aim of PF calculation is totally different than that employed in the payroll context. Allow us to think about PF Gross to denote the salary to be considered for PF calculation.

 

PF Gross includes Basic, DA, Conveyance, different Allowance etc. (heads of pay that are enclosed for PF calculation). It excludes House Rent Allowance, Bonus etc. (heads of pay that are excluded for PF calculation) as per the provisions of the PF Act.

 

Deductions from Gross Salary

 

To calculate Income Tax, gross salary minus the eligible deductions is considered. For example: you have to subtract HRA exemption, any home loan EMI, investments under section 80C and 80D and similar such things for calculation of taxable income.

 

NB: The taxation process is different for self-employed and salaried individuals.

 

Gross Salary under Section 17(1)

 

As per section 17(1), salary includes the following amounts received by an employee from his employer, during the last year.

 

Wages

 

Any advance of salary

 

Any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages.

 

The contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme, referred to in Section 8OCCD.

 

Any payment received by an employee in respect of any period of leave not availed of by him; (Leave encasement or salary in lieu of leave).

 

The aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of Rule 1] of Part A of the Fourth Schedule, of an employee taking part in a recognized provident fund, to the extent to which it is chargeable to tax, under sub-rule (4) there, i.e., taxable portion of transferred balance from unrecognized provident fund to recognized provident fund.

 

The annual accretion to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under Rule 6 of part A of the 4th Schedule.

 

Example of Gross Salary and Net Salary

 

Avijit works as a Marketing manager with XYZ Group Ltd. His gross salary per month is Rs.70,000 and his net-take home is just Rs. 56,000.

 

Salary Components

 

Basic Salary = Rs.25,000

 

HRA = Rs.20,000

 

LTA = Rs.10,000

 

Travel Allowance = Rs.15,000

 

Total = Rs.70,000

 

Deductions:

 

Provident Fund – Rs. 3000

 

Income Tax - Rs. 1500

 

Profession Tax - Rs. 500

 

Loan Deduction - Rs. 9000

 

Total Deductions - Rs. 14,000

 

Hence the Net Salary = Gross Salary – Deductions = Rs.70,000 – Rs.14,000 = Rs.56,000.

 

Taxation Process of Gross Salary

 

To calculate Income Tax, gross salary minus the eligible deductions is considered. For example, you will have to subtruct HRA exemption, home loan EMI(if any), investments under section 80C and 80D and similar such things for calculation of taxable income.