I am a fresher and just got placed in an IT company. I have zero knowledge in finance. Can someone explain what do the terms like Basic pay,Net Pay,Gross pay,PF,DA,HRA,LTA... mean in simple terms? How do they affect my salary? And ultimately how do I calculate the tax I need to pay?
**CTC is cost to company and the components are** Basic +HRA +CONVEYANCE +MOBILE REIMBURSHMENT +MEDICAL reimbursement +All allowances +LTA +employer contribution of PF +Employer Contribution towards ESI +Total variable incentives +Perks & benefits + Insurance Premium (in case of Group insurance) **Basic Salary is your Basic Pay and is fully taxable** **Gross Salary/ Gross Pay =** salary paid after adding all benefits and allowances but before making any deductions of PF and Tax. **Net Salary / Net Pay = Gross Salary – (PF & Taxes)** **Dearness Allowance (DA) -** Dearness Allowance is fully taxable and is a cost of living adjustment allowance to mitigate the impact of inflation on people. it is paid to Government employees, Public sector employees (PSU) and lately to private sector employees too, Dearness Allowance is calculated as a percentage of a basic salary **HRA: -** HRA is given to meet the cost of a rented house taken by the employee for his stay. The Income Tax Act allows minimum of the following 3 as deduction in respect of the HRA paid to employees. – • Actual house rent allowance received from your employer • Actual house rent paid by you minus 10% of your basic salary • 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro **Meaning of Salary for calculation the exemption of HRA** • Salary means (Basic + D.A + Commission based on fixed percentage on turnover). • Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year. **LTA or Leave Travel Allowance -** employer provides LTA to employee for Employee’s travel to any place in India alone or with their family. LTA exemption is limited to the extent of actual travel costs incurred by the employee.LTA exemption only in respect of two journeys performed in a block of four calendar years. Travel has to be undertaken within India and overseas destinations are not covered for exemption **Provident Fund:** Employer has to contribute 13.36% (of Basic + DA & Food concession allowance & retaining allowance, if any) towards PF deduction. It is divided as: i. Pension Fund : 8.33% ii. Provident Fund : 3.67% 12% iii. Employee Deposit Linked Insurance : 0.5% iv. Administrative Charges for PF Scheme: 0.85% v. Administrative Charges for EDLI Scheme: 0.01% All employees who earn up to INR 15,000 are now mandatorily required to get enrolled as members of the EPF. Employee Contribution = 12 % (of Basic + DA & Food concession allowance & retaining allowance, if any) **Form 16:-** If you are salaried employee in an organization, then you will get the salary after deducting tax by the employer. Therefore Form 16 is a certificate issued to you by your employer stating the details of the salary you have earned and the tax deducted on your behalf and paid to the government. **TAX CALCULATION :-** If you have other income as well apart from salary then sum up all the income like Income from renting of House property , capital gains from sale of assets , income from other sources like interest on bank deposits, RDs, FDs etc. Deduct tax benefit from the above computed income like investments made under NSC, LIC, tuition fees, PPF, and repayment of principal of housing loan under section 80C. Similarly, donations made to charitable institutions can be claimed under section 80G, and payment made towards premium of medical insurance policy can be claimed in section 80D. After summing up all income and deducting the tax benefits , the resultant computation will be taxable income. Now, calculate income tax on this taxable income using the IT slab rates for financial year 2014-15. Now you are all set for filing tax return. You can now visit the online tax filing site to file your INCOME TAX RETURN **ALL THE BEST FOR YOUR NEW JOB !!!**
Dear Rakesh, You are just trying to get your Tax return prepared free of cost. Please note we are professionals of Finance and we study analyse very hard to provide services of Income Tax and Service Tax. But you are trying to get these information just for free of cost. I think nobody should tell such a thing. Because if we will ask about ITs then will any person of IT will tell us the their knowledge of any IT knowledge just free of cost i.e. they will not provide service just free of cost. Regards ! Lokesh Garg !