Pagar Khata -Staff Payroll & Attendance Management
Your take-home salary is the sum total of your basic salary, deductions made, additional allowances, and so on. Gross Salary, CTC-Cumulative Cost to Company, and Net Salary are all terms linked with your salary. Hence it is necessary to understand these terms and how they impact you. Let’s begin with your salary’s foundation or the Basic Salary. Let’s answer some important questions like what is base salary in India? And let’s see how salary is calculated in India.
Minimum Basic Salary is the fixed portion of your salary before the addition of allowances like DA (Dearness Allowance), HRA (House Rent Allowance), Overtime, Bonus, etc, or deductions like Employee Contribution to Provident Fund, Gratuity etc.
It is a part of your total CTC (Basic salary percentage = 40 to 50% of the total salary) and take-home salary. Expenses like phone, travel, internet usage etc., especially for the work-from-home employees are added on to their basic pay.
Thus your basic pay is the most important part of your salary structure based on which other salary elements like gratuity, PF etc., are calculated.
Annual Basic Salary = Monthly Basic Salary X 12 months.
Basic salary/pay = Gross Pay-(sum total of allowances like DA, HRA, Conveyance, Medical insurance etc)
Basic pay/salary = A percentage of the Gross Pay or percentage of the CTC
Consider these examples on how to calculate basic pay:
First, let’s define gross salary and basic salary. The gross salary formula depends on the basic pay. It is generally the sum of your basic pay plus allowances before any deductions. From the above discussion, basic pay meaning stands at - the fixed portion of your monthly salary before any additions or deductions.
Gross Pay = Basic pay HRA, DA, Medical, Conveyance, and Other allowances
Basic salary = Gross salary – HRA – DA – Medical – Conveyance – Other allowances
Basic pay = Percentage mentioned X Gross Pay
Take-Home Salary = Gross Pay- Deductions like Contribution to Pension, Pay Reduction Due to Strikes, TDS, Insurance Premiums, Court Order Payments etc.
You can easily calculate your take-home salary with the online Excel Salary Sheet Templates. This has columns for additions and deductions, making the calculation easier than before.
Also Read: How To Save Income Tax on Income From Salary For Individuals
As per the Income Tax Act, Income Tax is charged on your total take-home salary, not just your basic salary. Thus your basic salary is taxable, which is why companies do not keep a basic salary higher than 40 to 50% of the total cost to the company or CTC.
Your offer letter or appointment letter usually has an additional sheet on your salary break-up that shows all the different components of your salary. The most common components in your salary are listed below:
Also Read: PF Calculator - Calculate EPF Online
There are both pros and cons of lower Basic Salaries. All your allowances are based on basic salary. This low basic pay will result in lower allowances and a low gross and take-home salary. However, it also means less tax payment.
Nearly all employees have questions about CTC, salary calculations, income tax calculations, basic salary, gross, and net salaries. Today one can easily calculate these using top-rated apps like the KhataBook app. Try it today to understand your salary better.
1. Is the basic salary component taxable?
Yes, income tax is charged on the take-home salary. Basic salary is a fully taxable component of your take-home salary. Higher the basic pay, higher the taxation.
2. What deductions are made from the CTC?
Common CTC deductions which affect the take-home salary are ESIC, PF Provident Fund, Labour Welfare Fund, Professional Tax, etc.
3. What components are found in the CTC and salary structure?
The commonly found components of a salary structure and calculation are basic salary, allowances like the DA- dearness allowance, HRA, conveyance allowance, medical allowance, leave travel allowance, children hostel allowance, children education allowance, telephone, internet and mobile reimbursements, driver salary, car maintenance, professional periodicals/ books and other special allowances like food coupons, entertainment, and stay at hotels, etc.
4. How much of the CTC is the basic salary?
In India, a basic salary is usually 40 to 50 per cent of the total Cost to Company or CTC. Components like the statutory PF, bonus, gratuity etc., are also calculated as a percentage of your basic salary. Thus a decrease or increase in basic salary directly affects your gross pay and CTC.
5. What is the difference between grade pay and basic pay?
Basic pay is the employee’s minimum monthly earning, without any allowances added to it. In India, Government employees receive grade pay apart from their basic salary. Note that the grade pay is calculated based on the class/category of the employee designation. For example, Gazetted Officers are classified as Group A and Group B. The total of their grade and basic pay is then used to calculate the HRA, DA etc.
6. Is the basic salary the same as net or gross salary?
No. The basic salary/pay is different from the net and gross salary. It is the fixed minimum monthly amount an employee receives and is always without any deductions mandatory or otherwise or allowances being added in.
7. Is DA related to basic salary?
DA or the Dearness Allowance is always location-dependent and is calculated as a percentage of basic pay and is a fixed percentage of the employee’s basic pay. DA in a metro city will be higher than the DA applicable for postings in a small town/ village or city.
8. Will overtime pay be included in the basic salary?
No, extra and overtime payments do not form a part of the basic salary and are considered as allowances added onto the basic pay when calculating the gross pay.
9. How does a Salary Calculator Help?
A salary calculator helps calculate the take-home salary which is the total salary you get after all additions and deductions are made. Besides, it has income tax calculations, CTC calculations, etc and its formula box includes a variety of allowances and deductions across a range of employment conditions and hence suitable for all. It also has a leave and attendance tracker feature helping employees plan and understand their earnings better.
10. What is the meaning of basic salary?
Basic pay or salary is the minimum fixed amount of your salary that you receive every month. This is an amount before any allowances are added or deductions made. It does not reflect allowances like HRA, DA, bonus, payments for overtime, etc.
Pagar Khata -Staff Payroll & Attendance Management