Another year of payroll, taxation, and performance appraisal has drawn closer. It’s chaos for all three parties, the employer, the employee, and the middleman Human Resource department. The first three months of the year, always revolve around performance assessment, salary hike, ITR, layoffs - sounds a bit scary - and last but not the least job switches.
Financial year-end doesn’t seem to be a lot happening to many, but for some, it’s a stroke of luck. So, what should one know or should be aware of during this season? Be it anything tax slab, salary slip components, tax abbreviation, we will try to cover everything.
The total of all earnings that an employer pays to the employee in a cycle on a given date is Payroll. A paycheck includes salaries, wages, deductions, bonuses, and net pay. Besides remunerating the employees, payroll also includes the taxes that employees are required to pay, which are a part of deductions.
There are many components of a paycheck, and usually, employees walk-up to HR for every queries related to their paychecks. An employee should know the basic components of salary and how it is calculated. Here is a basic guide to salary components.
Cost To Company (CTC)
The amount an employer spends on an employee in a particular year.
CTC = Monthly Gross Salary + Other Benefits + Bonus Component
An amount that is paid to an employee before any extras are added or taken off. It is a part of the gross and net salary.
An amount calculated by adding up employees' basic salary and allowances, prior to deductions. It also includes bonuses, overtime pay, holiday pay, and other wages.
Gross Salary = Basic Salary + HRA + Other Allowances
The Net salary or take-home salary is paid to an employee after deductions, which include tax deducted at source (TDS) and other deductions as per the relevant company policy.
Net Salary = Basic Salary + HRA + Allowances - Income Tax - Employer's Provident Fund - Professional Tax
Allowances include house rent allowance (HRA), conveyance, medical allowance, incentives, etc. Allowances differ as per company policy.
A tax charged by the state government to let an individual work in a certain profession. The amount varies depending upon the monthly salary and the state in which one works. The maximum professional tax levied per year is INR 2,500.
The following states and union territories are excluded from professional tax:
Arunachal Pradesh, Andaman & Nicobar, Chandigarh, Dadra & Nagar Haveli, Daman & Diu, Delhi, Goa, Haryana, Himachal Pradesh, Jammu & Kashmir, Lakshadweep, Nagaland, Punjab, Rajasthan, Uttarakhand, and Uttar Pradesh.
Provident Fund (PF)
A fixed percentage of the amount, which is deducted monthly from employee's paycheck along with an equal contribution by the employer is contributed towards the provident fund scheme. The employee gets a lump sum amount, including self and employer's contribution with interest on both, on retirement. Contributions made by the employee and the employer equals 12% of the employee's basic pay.
A contribution is mandatory in either of the following:
Case 1: Basic salary < 15000 (per month)
12% of the basic salary
Case2: Basic salary > 15000 (per month)
Here, the company has an option to either contribute 12% of 15,000 (i.e. 1800) or 12% of basic salary.
The contributions are deposited in the employee’s PF account. You can check your balance here
Also read, Employees May Soon Take Home More Salary
Employees' State Insurance Corporation (ESIC) manages Employees' State Insurance (ESI), a self-financing social security and health insurance scheme for Indian workers. It is formed to provide employees and their family members medical care and other benefits. Employees whose monthly incomes does not exceed Rs. 21,000 per month, are eligible to avail benefits under this scheme.
A part of the salary that is paid to the employee only after 5 years of services offered by the employee. The amount is deducted monthly from the cost to company (CTC) that an employer will spend on an employee in a particular year.
Taxes are categorised as direct and indirect taxes. Direct tax is a tax one pays on the income, whereas indirect tax is the taxes that one pays at restaurants, theatres, e-commerce websites, etc. Direct Taxes are broadly classified as:
Corporate Tax: The tax that companies pay on the profits they make from their businesses.
Income Tax: The tax imposed by the government on income received by an individual. Individuals eligible for tax must file an income tax return annually to determine their tax responsibilities.
Deadlines one should know for income tax returns (ITR):
Deadline to submit your investment proofs
Deadline to make investments under Section 80C
Last date to file your tax return
Oct – Nov
Time to verify your tax return
For a complete list of deadlines, click here
For tax slabs read, It's Time To Review Your Tax Slab & Save On Taxes
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