Did you spot an error in the salary promised to you versus the one credited? Is there a huge discrepancy in the numbers? The unawareness of these intricate details about your salary, can often leave you confused or frustrated.
Every employee should be aware of the components of the salary structure to understand what goes into forced savings schemes and how to lower the tax burden appreciably. The components of the pay structure in India are unique and tailored to suit the income tax laws in our country.
But before making any assumptions let's understand the components of a corporate salary structure and what possible deductions may have taken place to affect your “gross salary”.
GROSS SALARY
Gross salary is the monthly or yearly salary before any deductions are made from it. Basic salary, House Rent Allowance, Provident Fund, Leave Travel Allowance, Medical Allowance, Professional Tax, etc. are some of the most prominent components of gross salary.
Gross salary comprises all the components of CTC except Gratuity, Superannuation Benefits, and the EPF.
GROSS SALARY FORMULA
Gross salary = Basic salary + HRA + Other Allowances
COMPONENTS OF GROSS SALARY
Gross salary includes a number of benefits, these are:
1. Basic Salary: This constitutes 40-50% of the gross salary and is a fixed component. It excludes any bonuses, incentives, benefits, or any extras provided by the employer.
2. HRA: The portion of salary paid to an employee to meet accommodation costs.
3. PF: Percentage of basic salary deducted from employee’s salary and credited to their provident fund account. The employer contributes his share as well.
4. Perquisites: Perquisites are benefits granted to an employee in addition to basic pay and other allowances according to their stature in the organisation. Perquisites can be monetary or non-monetary.
5. Salary Arrears: Arrears refer to the amount paid to an employee following a pay increase.
6. Additional compensation: This refers to any extra money given by an employer, such as a transportation allowance, a conveyance allowance, an out-of-town allowance, etc.
7. Bonus: A performance-based reward given to any employee.
8. Professional tax: State governments in India impose a professional tax on individuals. The maximum amount that is payable in a year is Rs. 2,500.
BOTTOM LINE
Two people can have the same salary but still get different amounts credited to their accounts every month. This would happen when their salary structure is different. Knowledge of what makes up the salary structure is extremely important since it helps keep the employee stay informed about what kind of tax deductions to claim.
