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HR Services1

Monday, 1 April 2013

Must to know about designing CTC-Cost to Company of an employee



CTC -Cost to Company


CTC- This term is confusing for many people and my post will help them to understand this better. Definition of Cost to Company differ from company to company and every company has its own structure and salary components which company wants to make part of CTC.  For simple understanding, let me define CTC which includes cost which company incur on employee in form of statutory contributions, reimbursement, benefits and sometime administrative costs other than Gross salary of employee.

We will understand all the possible components which company can put in CTC and what is the impact of these components on your in hand and tax liability.



CTC includes various components like:

Fixed Salary : It includes Basic, DA, HRA, Conveyance,  City compensatory Allowance, Special Allowances etc

Variable Salary : It includes Performance based incentive, Sale based incentive and Profit based bonus.

Reimbursements : It includes reimbursement of conveyance, medical, telephone, Books and Periodicals, Leave Travel Allowance.

Contributions: It includes the benefits offered by the company like Provident Fund, ESI, Superannuation, Gratuity, Statutory Bonus, Medical Insurance, Accident Insurance, Leave encashment etc.

Stock Options: Stock Options



Fixed Salary:


As the name implies it is fixed salary of employee and generally linked with attendance or number of payable days of employee. This is major portion of employee in hand salary. 

Basic :


Generally, it is 40% to 50% of CTC (Cost to Company). Basic salary is fully taxable. Many statutory components such as Provident Fund, Bonus and Gratuity etc and other benefits as per company policy such as Leave Travel Allowance etc. are related with Basic salary hence increase and decrease in Basic may impact CTC of employee.

DA- Dearness Allowance:


Very few private companies use it as salary component. It is mostly given to government employees. In Private companies, in case DA is missing from salary component then consider Basic as Basic + DA. Dearness Allowance is paid to lower the impact of inflation.

HRA- House Rent Allowance:


HRA is paid to employee to meet expenses against paying rent of a home. Normally companies keep it 40% to 50% of Basic salary depending upon where you live. In case you stay in metro cities then HRA will be kept 50% of Basic salary and in case you stay in non metro cities then HRA will be 40% of Basic salary. It is due to the fact that HRA is non taxable salary components and its taxability depends upon where you live.
HRA is exempted from taxable income. 

Least of following is exempted:
  • Actual HRA received
  • 50% of salary (basic + DA) if residing in a metropolitan city, or else 40%
  • The amount by which rent exceeds 1/10th of salary (basic + DA). In simple words (Rent Paid – 10% of Basic)


Example :  Lets take example of an employee with following figures.

Basic salary                                         :               10,000/- per month lives in Delhi (Metro city)
HRA                                                   :               5000 (50% of Basic)
Rent Paid                                            :               4000

To calculate his HRA tax exemption, let find out all three criteria:

Actual HRA received                      :               5000
50% of Basic                                   :               5000
Rent paid-10% of Basic                  :               3000 ( 4000 i.e. Rent Paid minus 1000 i.e. 10% of Basic)

(Minimum of above three is Rs 3000/- hence employee will get tax exemption on Rs 3500 per month.)

From above example it is evident that HR should keep HRA as 50% (40% in case of non metro) so that employee can get maximum benefit of HRA for tax exemption.

Let’s understand what I am trying to say here. For example if HR structures above employee HRA wrongly and keep it Rs 2000/- which means new structure will look like as below:

Basic salary                                         :               10,000/- per month lives in Delhi (Metro city)
HRA                                                   :               2000
Rent Paid                                             :               4000

To calculate his HRA tax exemption, let find out all three criteria:

Actual HRA received                      :               2000
50% of Basic                                   :               5000
Rent paid-10% of Basic                  :               3000 ( 4000-Rent Paid minus 1000-10% of Basic)

Minimum of above three is Rs 2000/- hence employee will get tax exemption on Rs 2000 per month. Hence it is clear that this is not a tax friendly salary structure.


Conveyance Allowance:


Conveyance allowance is paid to employee against expense to commute between Office to Home. Conveyance allowance is non taxable up to Rs 1600/- per month. If an employee gets Rs 1800/- per month, as conveyance allowance, then Rs 200 per month will be taxable. Hence normally you will find maximum Rs 1600 under Conveyance allowance head. Employee need not to submit any bill for the same.

CCA- City Compensatory Allowance :


This is paid to employee to compensate cost of living of a particular city. This is basically a fully taxable component. In standard form, CCA vary from city to city and grade to grade. CCA depends upon company policy.

Example : Below is an example of CCA for Delhi and Jaipur for Grade 1 and 2.


Location
Grade
CCA
Delhi
Grade 1
3000
Delhi
Grade 2
2500
Jaipur
Grade 1
2000
Jaipur
Grade 2
1500

Whenever an employee gets transferred from one location to another CCA also gets changed accordingly. This is also as per company policy.

Special Allowance:


This allowance component is mainly used to adjust rest of the amount which is to be given to an employee. For example, company wants to give Rs 20000 as gross to an employee and company has allocated Rs 18000 as Basic, HRA, Conveyance allowance and CCA then Rs 2000 will be put under Special allowance. It is fully taxable allowance.

Any other type of allowance:


Company as per company policy can also make some other allowances which can be paid to employees. For example Uniform washing allowance, Attendance allowance etc. All these components are taxable.

Variable Salary:


As the name implies variable salary is not fixed and depends upon performance of an employee. Now a days, many companies are keeping this as part of their employee CTC. Earlier, only employees related to sales or profit making department use to have variable component in their salary but now even employee related support functions like HR, admin, QA, Training etc also have variable components in their salary. Companies are not willing to pay more fixed but open to pay higher variable pay as variable is related to sale and profitability of organization and company has no problem in paying money to employees if company is making profit. This is the reason that fixed salary is decreasing and variable pay percentage is increasing day by day. Even some of the companies make Fixed and Variable pay as 50-50 for sale profile.

Performance Based Incentive:


Performance based incentive, if made part of CTC, normally known as variable pay. Every company has different policy to give performance based incentive or variable pay. Some companies may consider your monthly performance rating to give this variable amount. Please refer link How to Build mature performance managementsystem without any automation software?” to know more about performance rating system.

Example: Below is one of the sample sheet which shows variable pay % given to an employee basis his rating.

Rating
Variable pay %
5
150%
4
125%
3
100%
2
70%
1
0%

Some companies link it with major key deliverable of an employee.

Example: In case of a Recruitment Executive profile, variable pay can be paid if recruitment executive achieves some key deliverable. One of the example as below:

  • If 100% positions are closed within 30 days TAT    :               150% of variable pay
  • If 90% positions are closed within 30 days TAT      :               100% of variable pay
  • If 80% positions are closed within 30 days TAT      :               70% of variable pay and so on





Sale Based Incentive:


Sale based incentive is normally over and above CTC but some company makes it part of CTC. In any case, sales based incentive is given to employees who are in sales profile.

Profit linked Bonus:


In most of cases it is paid annually. Company link “profit linked bonus” with profitability of company or project or department. This also works as retention tool and motivates employee to ensure higher profitability at the same time.

Design of performance incentive scheme is very important and many factors should be kept in mind while framing one. Policy maker should give due importance to historical data, person’s capability, product and service sale ability  market trend etc so that incentive plan framed should not look un realistic otherwise employee will feel that he will never be able to achieve variable pay which is made part of his CTC and in this case performance based incentive will loose its positives.

Reimbursement:


Reimbursement is paid to employee against some expenses and employee need to submit bills for the same. Every reimbursement should be seen differently in context of tax.

Medical Reimbursement:


Medical reimbursement is paid to employee to meet expenses on medical. It is non taxable up to 15000 per annum. It is up to company whether company wants to pay it monthly, quarterly, half yearly or annually. Amount paid above 15000 in a year will become taxable. Employee need to submit medical bills in support of medical expenses. In absence of medical bills it will become taxable income. Employee can submit bills of medical expenses made on spouse, child and dependent parents.

Many things related to medical reimbursement payout depend upon company policy. For example, whether employee can start claiming medical reimbursement from first month or after completion of certain period of time, whether employee will get medical reimbursement in case of non submission of medical bill even if it is taxable, whether medical reimbursement is linked with employee attendance by any way etc.

LTA - Leave Travel Allowance:


Leave Travel Allowance is also known as Leave Travel Concession (LTC) which is paid for travel cost incurred by employee in travel. Every company has its own rule to decide on amount of LTA to be given to an employee. A company may prefer to keep it equal to monthly basic salary of employee or make it fixed depending upon grade and native place of employee. There is no, as such, guidelines from government on LTA amount. It can be any amount which employer wants to keep as LTA.

It is a non taxable income but there are some rules which should be kept in mind while taking benefit of LTA for tax.

  • Employee need to take leave especially Privilege leave.
  • Only travel cost will be reimbursed which includes travel cost of spouse, child and depended parents.
  • Only amount paid against travel cost will be non taxable. For example if my LTA eligibility is Rs 10000/- and employee spends Rs 5000 in travel and submits bills of same then only Rs 5000/- will be non taxable. Rest Rs 5000/- will be taxable income.
  • LTA is exempted for two journeys in a block of four years. Current block is 2010-2013 and next block will be 2014-2017.
  • Journey should be made through shortest path between two destinations.

Training Reimbursement:


It is provided to employee for expense incurred on professional training. It is non taxable up to Rs 14000/- per annum and employee needs to provide bills of same.

Mobile/ Telephone Reimbursement:


Mobile reimbursement is paid to employee against expense incurred for use of mobile / telephone for official purpose. Employee need to submit bill for same. Employer can fix an amount for such reimbursement. Such amount should be logical and linked with employee's profile

Books and Periodicals:


This is paid to employee to reimburse expense made on purchase of Books and periodicals. It is non taxable if bills are submitted.

Children Education Allowance:


It is exempted from tax up to Rs 100 per month per child for two children.

Children Hostel Allowance:


It is paid to meet expenses for Children hostel allowance. It is exempted from tax up to Rs 300 per month per child for two children.


Food coupons or Meal Pass


It is given to employee to get meal during working hours. Rs 50/- per meal is tax free. Please read my blog post 5facts regarding Food coupons / meal pass and its tax implications to know more.


Contributions:


Contribution means contribution made by employer for employee’s long term saving schemes or social benefits scheme as per statutory compliance.

Employee Provident Fund:


It is contribution made by employer (12% of Basic salary) against EPF. It is statutory obligation at the part of employer. Employee gets benefit of PF deduction (12% of basic) at his part under Section 80C of income tax. There are many other facts related to Provident fund. 

To know visit following two posts:


Employer also keeps PF Admin (1.61% of Basic) as part of CTC which employer needs to pay to RPFC other than 12% of Basic salary.

ESIC (Employee State Insurance Corporation)


Employer need to deposit 4.75% of gross salary of employee in case employee’s gross salary is less than 15000. Hence employer keeps it as part of Employee CTC.

1.75% of gross get deducted from employee’s Gross salary which decreases his in hand salary by that amount. There is no tax benefit associated with ESI contribution or deduction.


Gratuity:


Gratuity is paid to employee once employee completes 5 years of continuous services or in case of employee death irrespective of completion of 5 years. It is statutory liability of employer hence many employers keep it in employee CTC. It is one of the most debated topics whether employer should keep gratuity amount as part of CTC or not? You can refer my post which can help you get many other questions related to gratuity i.e. 13 facts one should know about Gratuity!!

Employee gets 15 days salary for number of years completed as gratuity. Hence gratuity taken in CTC is @ 4.81% of Basic.


Gratuity paid to employee is exempted from tax. Least of following is exempted.

  • Actual gratuity amount paid
  • 15 days salary for each year of completion or 4.81% of Basic multiplied with number of months completed.
  • Rs 10 Lacs


Statutory Bonus:


It is statutory bonus which is paid to employees whose basic is less than or equal to Rs 10000/-. Minimum bonus payable is 8.33% of basic capped at Rs 3500/- i.e. Rs 292/- and maximum 20% of Basic capped at Rs 3500/-. Employer keeps it as part of CTC.

Group Medical Insurance and Accident Insurance:


Employer takes medical and accidental insurance for employee welfare hence employer keep premium paid against such insurances in employee CTC. Learn How to reduce medical insurance premium cost by controlling claim ratio.

Stock Options:


Now a days, many companies provide stock options to employees. This option is mainly given to top management employees. This helps company to keep their employee engaged towards company growth. It is beneficial for employee in case company is growing. Their stock value can increase in that case.

Conclusion:


If you know about these components and how these components will impact you as person or your employees as HR then you will be able to make your compensation package in such a way that suits to employee’s need.

For example, 

  • If an employee whose CTC is less and do not fall in tax range then HR can structure the CTC in such a way that gives more in hand to employee.
  • If an employee whose CTC is higher and falls under tax range then HR need to prepare best possible tax friendly structure so that employee can get maximum in hand at end of financial year.
Current Tax slabs are as below:

India Income tax slabs 2014-2015 for General tax payers and Women

Income tax Slab (In Rs) in a FY
Tax
0 to 2,50,000/-
Zero
2,50,001/- to 5,00,000/-
10%
5,00,001 to 10,00,000/-
20%
Above 10,00,000/-
30%

India Income tax slabs 2014-2015 for Senior Citizen ( 60 to 79 years) tax payers and Women

Income tax Slab (In Rs) in a FY
Tax
0 to 3,00,000/-
Zero
3,00,001/- to 5,00,000/-
10%
5,00,001 to 10,00,000/-
20%
Above 10,00,000/-
30%

India Income tax slabs 2014-2015 for Very Senior Citizen (Aged 80 and above) tax payers and Women

Income tax Slab (In Rs) in a FY
Tax
0 to 5,00,000/-
Zero
5,00,001 to 10,00,000/-
20%
Above 10,00,000/-
30%

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151 comments:

  1. Hi Sir,

    Excellent insight material.

    Regards

    Rajkumar.T

    ReplyDelete
    Replies
    1. Dear Raj,

      Thanks for your appreciation.

      Delete
    2. Crystal clear material! Thanks for sharing knowledge

      Delete
  2. Thank you sir for your efforts you put in to guide us through Designing CTC of an Employee.

    ReplyDelete
  3. Hi...
    good effort you have made to define the CTC,
    Thank you lot

    Regards

    Lingaraju N
    Manager HR
    9900067597

    ReplyDelete
    Replies
    1. Thanks Mr Lingaraju. You are welcome to share your views and queries. It will be pleasure if you help us grow HR SUCCESS TALK Forum http://hrsuccesstalk.com/forum/ by giving your views and opinion on question raised by other members.

      Delete
  4. Really i got good information because pf u its nice information about all issues.

    Thank You

    ReplyDelete
    Replies
    1. Dear Friend,

      Thanks for your appreciation.

      Delete
  5. Dear Sh Gobind,

    As part of CTC meal vouchers @ Rs 100/- per day can also be incorporated which are non taxable.

    regards

    Anil Chawla
    HR Professional

    ReplyDelete
    Replies
    1. Dear Anil,

      Yes, it can also be incorporated. As far as tax exemption is concerned either it is on Rs 100 per working day or Rs 50/-. Need to check.

      Delete
    2. Deas Gobind,

      Besides Washing allowance @ Rs 1000/- pm ;Prof. Lit. Allowance @ Rs 400/- pm Driver allowance @ Rs 900/- pm are non taxable.

      regards

      Anil Chawla
      HR Professional

      Delete
    3. Dear Anil,

      Thanks for your inputs. Can you share documents or other reference for these components being non taxable. I remember driver allowance is not valid now except when driver is provided by company and salary is paid by company only and not when employee has hired the driver and paying him salary which use to be the case earlier.

      It will be great contribution from your side.

      Please do post this on HR SUCCESS FORUM.

      Link below:

      http://hrsuccesstalk.com/forum/

      Delete
    4. This comment has been removed by the author.

      Delete
  6. Good information... thank you for sharing..

    ReplyDelete
    Replies
    1. Thanks Arthi for your appreciation.

      Delete
  7. Actually I was wondering for this.Thanks a TON for this information :)
    Shweta
    HR Professional.

    ReplyDelete
    Replies
    1. Dear Shweta,

      Thanks for your encouragement.

      Delete
  8. sir, thank you a lot for the information. i am very thankful to know the non-taxable limit for mobile phone charges is Rs 12000/-. i have reimbursement facility for mobile phone expenses restricted to a ceiling of Rupees five hundred per month . i am having prepaid service and the top-up charging is being done by the vendors and shopkeepers by 'sms' and the scratch-card system is not available for the many months.The previous accountant in our office accepted the claim bill attached with old scratch cards produced. The present accountant is insisting for bills and adds that the bills may be verified by him . The claim is pending for the last eighteen months.The higher officer is unable to help even when i explained the details. please advise.
    thank you a lot in advance.
    ganapathy k r.

    ReplyDelete
    Replies
    1. Accountant is correct by asking bills for expenses made and has all rights to cross check the same.

      You should refer clause in your appointment letter, if it is fixed then it can still be paid to you as allowance but taxable. If it is on actual then you need to produce bill.

      Delete
  9. Clear & succinct - Thanks - Divya

    ReplyDelete
  10. Replies
    1. Thanks Ashiwani for appreciation.

      Delete
  11. Replies
    1. Thanks Mounika for your encouragement.

      Delete

  12. Thanks Govind for the clear explanation of CTC. I've struggled to understand how the CTC works.

    When calculating annual increment and variable bonuses, which components of the CTC do you use to calculate the amounts?

    Example:
    Basic - 10,000
    HRA - 5,000
    Conveyance - 800
    Medical - 1,250
    Special - 5,000
    LTA - 10,000
    Guaranteed cash per mth - 32,050

    If the employee is eligible for a 10% increment do I use the basic salary (10k) or the Guranteed cash (32k) to calculate the increment amount?

    Do I use the basic salary or guaranteed cash to compute the variable bonus?

    Appreciate your advice.

    Thanks

    Vijaya Nair
    Singapore

    ReplyDelete
    Replies
    1. Dear Vijaya,

      It depends upon you. Normally increments are given on total CTC and bifurcation of increment amount is in the same ration in which existing fixed and Bonus is there.

      Request you to post your further queries on HR SUCCESS TALK Forum which is www.hrsuccesstalk.com for detailed answer from different HR professionals including me.

      Delete
  13. company has taken into the consider as income for following and has deduted TDs on it;
    1.LTA Rs. 23,652
    2.Telephone Reimbursement Rs.15,000
    3.Non taxable leave encashment Rs. 17,544

    Now They are not makeing changes to lower down the Tax liablity.

    Pl tell me how to reduce tax and how to get refund from TDS

    ReplyDelete
    Replies
    1. First of all, what is the reason of not taking these components as non taxable.

      If they have considered it as taxable then you can claim refund while filing your income tax return. For further queries visit www.hrsuccesstalk.com

      Delete
    2. how to get refund from IT filling and documents needed for it to support the refund.

      Delete
    3. Please put your queries on webstie.

      Delete

  14. If we mention in appointment letter employer PF contribution 12% pf + 1.61% admin and 4.75% of employer esic contribution that is okay right? It's legal right?

    ReplyDelete
  15. One more query if anyone taking leave so we have to deduct salary from ctc or gross salary?

    ReplyDelete
  16. Thanks a lot Mr. Govind !!!

    ReplyDelete
  17. Sir, many thanks for providing us with your valuable inputs. Truly appreciate it. With best wishes....Suraj

    ReplyDelete
    Replies
    1. Thanks Suraj for your appreciation.

      Delete
  18. Commendable job. Its like a supermarket of 'how to design CTC'. One stop for everything. Thanks a lot for explaning evrything in such an easy way!

    ReplyDelete
    Replies
    1. Thanks Kanika for your appreciation.

      Delete
  19. The article is quiet informative and thanks for sharing this information.
    How ethical or right is it to include leave - all cl, pl and sl as a part of CTC. I know of couple of organisations practising this and how would an employee negotiate of deal with this

    ReplyDelete
    Replies
    1. If you ask me, it should not be part of CTC

      Delete
  20. Need your assistance for LTA Claim!!

    I have traveled by road from Mumbai to Kolkata & have submitted the valid bill from Need your assistance!!

    I have traveled by road from Mumbai to Kolkata & have submitted the valid bill from transporter.
    I have total 5 people traveled including me & taken 5 days off from company.

    The total bill amount as per travel agent is 48K including taxes.
    Road bill contains 3K taxes, Does taxes get paid if I claim a valid LTA claim?

    As per my company they will pay me only 41K & rest is going to be taxable.
    As per company they will only consider the base fare provided on
    http://www.indianrailways.gov.in/railwayboard/uploads/directorate/coaching/pdf/Fares.pdf

    If I take the train ticket it is 5175 per person (51K), where as if I go as per above link
    The total distance traveled is 1987 km and from the link you get 4150 per person on single side so total is 41K.
    Here the difference is 10K.

    I have refereed all the sites, they only mention the AC 1st Class Rail fare, however this fare is a base fare from

    above link or can I claim equivalent of the train ticket.

    Please guide me on this query

    I have total 5 people traveled including me & taken 5 days off from company.

    The total bill amount as per travel agent is 48K including taxes.
    Road bill contains 3K taxes, Does taxes get paid if I claim a valid LTA claim?

    As per my company they will pay me only 41K & rest is going to be taxable.
    As per company they will only consider the base fare provided on
    http://www.indianrailways.gov.in/railwayboard/uploads/directorate/coaching/pdf/Fares.pdf

    If I take the train ticket it is 5175 per person (51K), where as if I go as per above link
    The total distance traveled is 1987 km and from the link you get 4150 per person on single side so total is 41K.
    Here the difference is 10K.

    I have refereed all the sites, they only mention the AC 1st Class Rail fare, however this fare is a base fare from

    above link or can I claim equivalent of the train ticket.

    http://indiarailinfo.com/train/farechart/7555
    If I go by rail claim of 1st AC (Duranto) and proper railway ticket:
    AC 1st Class
    Base Fare 4347
    Catering Charges 485
    Reservation Charges 60
    Superfast Charges 75
    Service Tax 208
    Net Fare 5175

    Still base fare is higher than the base fare provided on the site for rail ticket.

    Please guide me on this query

    Warm regards,

    Chandresh Shah

    ReplyDelete
  21. Dear Chandresh,

    Tax paid on bill should also be paid by company. But it depends upon company policy. I can understand that your company policy is to refer base fare of indianrailway hence nothing much can be done here.

    ReplyDelete
  22. Sir,
    How to give salary breakup?
    example:- if gross salary is Rs.10,000/- p.m

    Regards
    Keerthi

    ReplyDelete
    Replies
    1. Dear Friend,

      Please post it on www.hrsuccesstalk.com We can not attach excel file here.

      Delete
  23. A friend of mine was jobless and got an opportunity with a fairly okay kind of SME wherein they asked her to deposit a cheque with 3 months gross as security deposit which will get confisticated if she left before 3 years. During this period, she was absorbed as an Executive HR with x package hiding facts like breakup, heiarchy and job profile menitioning it to be policy of the company. within months all three changed and she was killing herself in the job.

    Not paid joining bonus as promised, job profile changed every week, breakup of CTC changed every month. she is more or less like a bonded labour and just killing herself through the 3 year binding. Is their a way out- no paper in balck and white has been signed for physical bond by anybody from organisation or by her.

    ReplyDelete
    Replies
    1. Where is the problem? She can resign and given notice period as mentioned in appointment letter

      Delete
  24. Good information... thank you for sharing..

    ReplyDelete
    Replies
    1. Dear Nupur,

      Thanks for your appreciation

      Delete
  25. Dhyalan Subramnian25 June 2013 at 02:46

    You must have the big heart to share these useful informations,Thanks for your wonderful share.

    Regards,
    Dhayalan subramanian

    ReplyDelete
    Replies
    1. Dear Dhyalan,

      I hope have live up to your expectation

      Delete
  26. Good Information by you Mr. Govind Negi. Thanks alot

    ReplyDelete
    Replies
    1. Dear Gandam,

      Thanks from your encouragement.

      Delete
  27. it is copy book for every body in this profession. I hope we may expect many more articles from your end.

    ReplyDelete
  28. hii!!!does employees' cost to the company include recruitment cost?and is basic wages different from basic salary?and is basic wage+da=basic salary...plz reply..

    student

    ReplyDelete
    Replies
    1. Dear Friend,

      It is not logical to include recruitment cost in CTC of an employee. Basic Salary is not different from basic wage.

      Companies where DA is not separate salary component there Basic should be treated as Basic + DA

      Delete
    2. such a prompt reply!!!thankyou so much sir!!!

      Delete
  29. gratuity paid by which authority is altogether excluded from the computation of total income?

    ReplyDelete
    Replies
    1. Gratuity is paid by employer and up to 10 L is exempted from Income tax

      Delete
  30. Hello sir,
    Greetings to you
    I am thankful for your HR success talk blog. It is really helpful in terms of giving practical knowledge to budding HR professional like me. sir I have little query in terms of HRA calculation.
    Example : Lets take example of an employee with following figures.

    Basic salary : 10,000/- per month lives in Delhi (Metro city)
    HRA : 5000 (50% of Basic)
    Rent Paid : 4000

    To calculate his HRA tax exemption, let find out all three criteria:

    Actual HRA received : 5000
    50% of Basic : 5000
    Rent paid-10% of Basic : 3500 ( 4000 i.e. Rent Paid minus 500 i.e. 10% of Basic)

    (Minimum of above three is Rs 3500/- hence employee will get tax exemption on Rs 3500 per month.)

    in this example we took 10%of basic as 500 so my query is that whether this 10% is of 10,000 i.e actual basic or it is 10%(50%of basic which is left.)

    because 10%of basic salary of 10000 will be 1000 and if we calculate for 5000 then it will come to 500. so kindly clarifies my doubt because even if I am searching on net not getting clear understanding.

    Thanks and Regards
    Antima Sharma

    ReplyDelete
    Replies
    1. ear Antima,

      You have pin pointed an error in the calculation. We should have taken 1000 in place of 500. Corrected the same in blog also.

      Delete
  31. Thanks sir for your reply. I have never read such a brief and effective information about CTC. so many time I came across with lots of doubts about compensation in last two year of my MBA but you made it clear in one article thanks alot. Will look forward to learn more from your experience.

    ReplyDelete
  32. Dear Sir,
    Kindly proved me the best tax saving on my CTC of Rs-2280000/- ann.
    kindly breakup my ctc for max tax saving also tell me the Reimburesment part which can claim per month.
    s. kumar

    ReplyDelete
    Replies
    1. Dear Surender,

      Request you to post your query on our HR Forum called HR SUCCESS TALK Forum.

      Below is the link:

      www.hrsuccesstalk.com

      Delete
  33. very much informative...nice article...

    ReplyDelete
    Replies
    1. Thanks Ranjeet for your appreciation.

      Delete
  34. It is a wonderful article. Infact, I am about to publish an article on the same lines. I am happy that atleast someone in HR knew about DA and CCA as not many HR Professionals working in private sector know about DA and CCA. Neither not many private companies provide these in CTC.

    Once again, I really admire the way you have brought this article.

    ReplyDelete
    Replies
    1. Dear Suresh,

      Thanks a lot. Be in touch. Also request you to have a look at HR SUCCESS TALK Forum and contribute.

      You can be in touch with me at govindsinghnegi@gmail.com

      Delete
    2. Pls let me know how do we calculate leave deductions is it deductible from fixed components like HRA, Conveyance, Medical allowance?

      Delete
    3. Leave deduction will be on gross salary which includes Basic, HRA, Conveyance, Special Allowance and any other fixed allowance

      Delete
  35. Hello Sir,

    I have been offered a job and would appreciate your help to help me understand few things on my CTC what my new employer is offering

    1> they say my Base Pay = 725000 and plus sign on Bonus for 1st year = 125000 plus sign on bonus for 2nd year = 100000

    So they conclude that my total package is 950000, now I am bit confuse, is this right what would my total package becomes on 3rd year. Am I losing money in longer terms and can I say that my CTC is 950000 to other companies if I choose to leave

    ReplyDelete
    Replies
    1. Your CTC should be 7,25,000 plus 1,25,000 in first year and same formula for next years.

      Delete
  36. Hi...
    I just want to confirm that now my ctc is 13500 and in October after appraisal my salary will be 15150 or 15200 so my esi dedication will stop or not...

    Thanks.
    Arvind

    ReplyDelete
  37. Dear Govindji, I hope you are doing good. I really very happy for shearing the information and clarifying the each and every blog. I need one small help from you.
    I.e I am working with one reputed steel manufacturing industry. management has given to design New PMS policy. management expected to satisfy the employees for getting big ctc. In that, management is expecting that pay as shown as variable pay. They desired once in a year they want to pay to the employee. The points should taking from production 50% and attendance and disciplinary 50% . This is what, they are expecting. Please help me in this regard. My mail ID hari.love.indian@gmail.com.
    Warm Regards,
    Hari Krishnama Raju

    ReplyDelete
    Replies
    1. Dear Hari,

      This needs a longer discussion. Request you to visit our HR SUCCESS TALK Forum and go through different threads on performance management and learn. You can also ask your query there.

      http://hrsuccesstalk.com/forum/Forum-Performance-Management

      Delete
  38. Dear Sir,
    Im a graduate & a fresher who has joined a botique hotel in andheri. they had promised me a ctc of 10,000/- & had told me when i signed my offer letter that my net take away would be 7,756. After i joined i was shocked when they told me that my salary has decreased due to the taxes & now my salary in hand would be 7,556. I got an appointment letter stating the same. But when i got my August months salary it showed net take away 7455/-. Since im not so good in account im feeling im being cheated by the company. I would reallly appreciate if you could help me. I will give you all the details of the salary slip tomorrow.

    Thanks,
    Nikita

    ReplyDelete
    Replies
    1. Dear Nikita,

      You need to share your offer or appointment letter showing salary breakup and salary slip of month where you got 7455/- to understand your case and give inputs. You can not attach your document here.

      Hence request you to visit our HR SUCCESS TALK Forum to post your query along with required documents.

      Link of the forum is www.hrsuccesstalk.com/forum

      Also, There should be no income tax deduction in 10000 CTC. You must be reference professional tax applicable in Maharastra.

      Delete
    2. They are deducting PF, Esic, Maharashtra Labour tax & meal deduction. If you could just let me know according to you wat is the percentage the employye pays & the contribution of the employer.

      Delete
    3. My offer letter:Salary Breakup
      Basic-5,000
      HRA-2,500
      Conveyance Allowance-nil
      Education Allowance-nil
      CCA-1,397
      GROSS MONTHLY TOTAL: 8,897
      Less monthly deductions: Profession Tax-175
      PF employee-600
      ESIC Employee-156
      Meal Deduction:250
      Income Tax- As applicable
      MONTHLY NET TAKE HOME:7,716
      Add: PF Employers Contribution-681
      ESIC employer contribution-267
      COST-TO-COMPANY:10,000/-
      Then when i got my first salry they said dat the taxes have increased so ur salary has decreased.
      MY APPOINTMENT LETTER SALARY BREAKUP:
      Basic-5,640
      HRA-282
      Conveyance Allowance-800
      CCA-2,091
      GROSS PACKAGE- 8,813
      Less:Professional Tax-175
      PF Employee-677
      ESIC Employee-155
      Meal Deduction-250
      Income Tax-As applicable
      NET TAKE HOME SALARY-7,556/-

      SALARY SLIP OF JULY
      Basic-5640
      HRA-282
      Coveyance Allowance-800
      CCA-2,091
      Total Earnings:8,813
      Less: PF-676.80
      ESIC-154.23
      Professinal Tax-175
      Meal Deduction-250
      Maharashtra Labour Welfare Fund-12
      Total Deductions:1,268
      NET PAY: 7,545/-

      SALARY SLIP OF AUGUST:
      Basic-5,821
      HRA-291.10
      Conveyance Allowance-825.81
      CCA-2,158.45
      TOTAL EARNINGS:9097.30
      Less: PF-698.63
      ESIC-159.20
      Professional Tax-175
      Meal Deduction-250
      TOTAL DEDUCTIONS:1282.83
      NET PAY: 7,815/-
      Also would like to let u know dat i worked on 15th Aug so im supposed to get paid double for that day.

      I would be very grateful to you if you could back to me as soon as possible so that i have all my doubts cleared,.




      Delete
    4. Dear Nitika,

      Basis information provided you, i dont see any reason of further reduction of your in hand salary.

      There must be some other reason.

      Delete
    5. Dear sir,
      I did not get your point.Are trying to tell me that they are cheating with me or my salary is proper.

      Delete
    6. Dear Nikita,

      Basis information provided by you, there is no reason i could see that your in hand or salary structure should be changed from offer made to you.

      Also, i dont see much difference in your in hand reduction. So there must be some other reason which you can get from your HR department only.

      I would have said that you have been cheated if your in hand would have reduced substantially which is not the case in your case.

      Delete
  39. ThanQ very much Sir....very helpful

    ReplyDelete
    Replies
    1. Dear Venkat,

      Thanks for your appreciation

      Delete
  40. Dear Sir,
    I was also looking for it.
    Sir, Please suggest me two things . Ist one is that the man/women have the same PT deduction slab ?
    And Second, If the company have only 15 employees, then that company is eligible for PF Decutions/ Contribution or not ?
    Best Regards,
    Manpreet Kaur

    ReplyDelete
    Replies
    1. Dear Manpreeet,

      PT deduction is same for both-man and woman. Please refer to PT act of state you are in.

      Company having less than 20 employees is not covered under PF

      Delete
  41. Dear Sir,

    I need few suggestion for Employee engagement. What kind of activities will help to make it success .

    ReplyDelete
    Replies
    1. Dear Arif,

      I have written first blog on employee engagement and link is as below:

      http://hrsuccesstalk.com/2013/09/29/how-to-find-out-what-engage-an-employee/

      Delete
  42. Sir,as a fresher how can i start my career in HR if i have done MBA(HR).

    ReplyDelete
    Replies
    1. Dear Sonal,

      Do some internship in company to start with even if you get little or no stipend. Read about HR things and learn practical implementation of same. Ask questions.

      Visit website www.hrsuccesstalk.com and visit Learn HR segment if you are looking for learning HR

      Delete
  43. hi sir!!!have been looking at your blog since few months ago and all i can makeout from it is you are a honest person....therefore i kindly request you to join Aam Aadmi Party and render your valuable service to the nation...."the world suffers a lot not by the evil of bad people but by the silence of good people".....right man at a right place definately makes world a better place....with regards...AAM AADMI

    ReplyDelete
  44. Very nice Mr.Govind.. Explanation was in simple words which made me understand very clearly..

    ReplyDelete
    Replies
    1. Dear Monika,

      Thanks a lot for your appreciation. This means a lot to me.

      Delete
  45. Could you share the tax implication on the compensation and benefits

    ReplyDelete
    Replies
    1. Dear Friend,

      Well, in my this blog post, i have tried to also mention tax implication wherever applicable. In case you have any specific query then request you to post the same in our HR Forum.

      www.hrsuccesstalk.com/forum

      Delete
  46. Hi Govind,
    Thanks for the sharing.General Information but very useful to everyone.

    ReplyDelete
    Replies
    1. Dear Umesh,

      Thanks for your appreciation. this means a lot to me.

      Delete
  47. Thanks a lot.. It ll help a lot for budding HR's...

    ReplyDelete
  48. Dear thenmozhi,

    Thanks for your appreciation.

    ReplyDelete
  49. This comment has been removed by the author.

    ReplyDelete
  50. Thank you so much sir, we have an assignment on Employee payroll and taxation benefits in a HRs perspective and I hope this would help us do the presentation.

    ReplyDelete
  51. Thank you so much sir, we have an assignment on Employee payroll and taxation benefits in a HRs perspective and I hope this would help us do the presentation.

    ReplyDelete
  52. Dear Meghna,

    I am happy that my blog post has helped in some or other way.

    ReplyDelete
  53. Dear Sir

    As suggested by you on linkedin, I have joined this forum.

    I have one question arising in my mind, does Gross salary include employer as well as employees contribution of PF and ESI or just the employee's contribution?

    My company adds only employee's contribution and employer's contribution is over and above Gross Salary.

    ReplyDelete
  54. Dear Kajal,

    In Gross salary, only employee side PF And ESI can be deducted, which means gross salary of employee includes employee side PF And ESI.

    Employer need to contribute employer side PF And eSI which is over and above gross salary

    ReplyDelete
  55. Dear Mr. Govind,

    Thanks for the detailed structure.

    ReplyDelete
  56. Dear Dharan,

    Thanks for your warm appreciation.

    ReplyDelete
  57. Thank you for sharing the in depth information Govind. Highly appreciated.

    ReplyDelete
  58. SIR,,
    MY CTC IS 1.74 AND COMPANY DEDUCT 25 % AS PF FROM MY SALARY. IS IT PREFERABLE AS I KNOW 12.5 % IS FROM US AND REST FROM COMPANY WILL GIVE. BUT COMPANY TOLD ME THAT CTC INCLUDED WHOLE PF.
    IS IT POSSIBLE?
    LET ME KNOW SIR.

    ReplyDelete
  59. Dear Jayshil,

    Employee PF is deducted from Gross Salary. Employer contribution to PF should be part of CTC.

    Hence employer is correct in that sense

    ReplyDelete
  60. pragati bhardwaj31 May 2014 at 09:42

    I needed this info for interview I have to attend. It's a great help indeed. :-) thanks.

    ReplyDelete
  61. Dear Pragati,

    You are most welcome. I am happy that it helped you some way

    ReplyDelete
  62. Hi Sir,

    Hope this email finds you well.

    I am working with one Multi National group and just being promoted and transfered to Metro city. According to my HR department only 20% metro city allowances will be added to my package in addition to the increment as per grade review.

    Could it be possible for you to help me with any rules and regulations or Policy issued by Indian Government on Metro city allowances to be paid to transfered employee from the small town which abide Private Limited companies?

    Thank you.

    Regards,
    Shyam

    ReplyDelete
  63. Hi sir . I want to know that can we avoid esi share even salary is below then15000.

    ReplyDelete
  64. Sir my friend works for a PSU Mutual Fund. His company entered into a JV with a foreign company. Now they hv two types of salaries. Very High CTC for JV role people, less salary for the older employees. And they are called graded emloyees. So far the co. mgmt had practice of wage revision whenever announced by govt. But Now some evaluation process is going on for fixing CTC even for older employees and he heard the rumour that he may not get the arresrs amount if the CTC cones into effect before this yrs wage revision. If it is so, is not the injustice done to him according to labor law. Is this a common practice in india to have this kind of SALARY DISCRIMINATION in the same company for two diff. Of employees, the one who gets recruited on CTC with foreign tag attached and the older unfortunate employees? Why Indian Labor laws dont question this ? And is it true that if the CTC comes into effect before wage revision, they may not get arrears.

    ReplyDelete
  65. Am so glad for the information i have got from this site,its all i needed for my term paper. thanks alot

    E-Procurement Services Bangalore
    Travel and expense management india

    ReplyDelete
  66. Dear Shyam

    Metro allowance is as per company policy.

    ReplyDelete
  67. Dear Shyam

    Metro allowance is as per company policy.

    ReplyDelete
  68. Dear Friend,

    It is mandatory to deduct and contribute against ESI if gross salary is less than or equal to 15K

    ReplyDelete
  69. Sir when i will left my job.then company will return my ctc..?

    ReplyDelete
  70. Dear Friend

    Every component of CTC has different criteria. Hence you should refer that.

    In case you have any query regarding any specific component do let us know.

    Eg. Gratuity is part of CTC but employee does not get the same in case employee does not complete 5 years of continuous service

    ReplyDelete
  71. Dear Sir,

    It's Really Useful of me.Thank you every much..

    With Regards,

    Venkatesan K P

    ReplyDelete
    Replies
    1. Dear Venkatesan,

      Thanks for your appreciation.

      Delete
  72. Dear Mr Govind,

    Hello,

    I am an ex army officer who has recently stepped out of the uniform & joined the corporate sector.
    I have been given my offer letter along with CTC details which I wanted to understand before going to my company HR.
    There is a component of Reimbursement which says "Business Expenses Reimbursement".
    My query is what exactly is this?
    Do I have to produce Bills?
    Is it taxable?

    Thank you in anticipation

    ReplyDelete
    Replies
    1. Dear Sir,

      Business Expense Reimbursement is against expense made by you in getting business for the company. Rest you need to check with your HR.

      Yes, you should submit bills against the same.

      It should be non taxable.

      Delete
  73. Dear Sir,

    Good Morning!!

    I need a career advice . I am fresher 2014 completed MBA (Operation and Marketing) with CGPA-8.32 and I am having 2.9 years of BPO experience from TCS. I got a job in HR , but because of salary issue I left. Again I am searching and getting offers in Marketing but I am so confused regarding what career should I choose HR or Marketing. Kindly reply

    Regards
    Pooja

    ReplyDelete
    Replies
    1. Dear Pooja,

      Both HR and Marketing are good fields. First, you need to decide by yourself which one you want to choose. As you have post graduation in Marketing, Marketing will be a better option

      Delete
  74. Dear Govind,

    I need your help for calculating monthly TDS for a salaried employee which salary is Basic-15100, HRA-4100, Special Allow.-800, Total Gross-20000 in April. He receive incentive 20000 in April. Incentive is not fix for every month.

    And In May Basic-15100, HRA-4100, Special Allow.-800, Total Gross-20000 in May. He receive incentive 25000 in May

    And In June Basic-15100, HRA-4100, Special Allow.-800, Total Gross-20000 in June. He receive incentive 0 in June.

    Please calculate TDS on monthly basis. I need to know the calculation.

    In July he left the job.

    Regards
    Dainy

    ReplyDelete
    Replies
    1. Dear Dainy,

      Request you to post your query on our HR Forum.

      Delete
  75. Thanks for your valuable information and it is very useful for us, I have just seen your blog and it is nice.. please update frequently. We are Accuprosys…. And we provide services like Corporate Legal Services, HR Consulting Services, Facility Management and so on.. Please see our website for more information.

    ReplyDelete
  76. Dear Team,

    I got to know that there is a change related to conveyance and PF and other salary heads in budget 2015. Anyone having the insight of the same, please revert in details.

    Regards
    Banashree

    ReplyDelete
    Replies
    1. Dear Friend,

      In terms of Conveyance, now Rs 1600 per month is tax free. No change in PF

      Delete
  77. Yeah It's good I appreciate this article. I recommand it to my friends,I,ll be back here again and again .
    Visit our blog for more .

    ReplyDelete
  78. HI All,

    past 15 + years working in IT industry w/o UG. now i got an opportunity in IBM used dummy certificates for survival. currently working in Indian based MNC where background check will be done on case to case or on project request.
    but in GIT its not mandatory.

    I would like to know how IBM take this forward. is it advisable to continue in the current job or considering experience verification may be ignored.

    I did my BSc in madras university and due to personnel reasons couldn't complete it.

    valuable advice would be appreciated and help 3 of the dependance survival.

    Im pursuing my BCA in IGNOU and yet to complete this semester.

    ReplyDelete