Salary is a fixed amount of money or compensation paid to an employee by an employer in return for work performed. It is usually paid at the end of each month.
The salary components vary with different employers. Below is a list of the most common salary components.
Basic Salary: It is a fixed base part of an individual’s compensation package. Basic Salary is taxable & usually 35-50% of the total gross salary. However, it is usually determined by taking an employee’s designation, experience & industry of work into account.
House Rent Allowance (HRA): It is a monetary benefit given to employees by companies for expenses related to rented accommodation. It is a fully taxable component if you do not stay in rented property.
Leave Travel Allowance (LTA): It is a type of allowance which is provided by the employer to his employee who is travelling on leave from work to cover his travel expenses. LTA is an important component of the salary of the employee as it is eligible for income tax exemption as per the Income Tax Act, 196.
Special Allowance: Special allowance is a fixed amount that is given to employees over and above the basic salary in order to meet certain requirements. It is a fully taxable component of your salary.
Bonus: It is a performance based incentive given to the employee by their employer. The entire bonus amount is fully taxable.
Employee provident fund: It is an investment made by both the employer and employee. Each contributes 12% of the employee’s basic salary towards EPF. The lump-sum amount of this acts as an employee's retirement benefits scheme. Contribution is available for a deduction under Section 80C of the Income Tax Act, 1961.
Professional Tax: It is the tax levied and collected by the state governments in India. It is a direct tax and the maximum amount payable per year is INR 2,500.
Calculating the salary is complicated as it includes various aspects. People prefer using salary calculator tool in India to save time and effort.