Understanding Salary and Reimbursement Components with limits

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What is Salary?

A Salary is a fixed amount of compensation paid to an employee by an employer in return for work performed. Salary is commonly paid as monthly payments in India. The amount to pay is mutually agreed prior to joining organisation and them documented in the employment contract.

Every month net salary amount is paid to employees post statutory deduction, like Provident fund, ESIC, Income Tax, Professional Tax, and LWF. This deduction is subject to the applicability of the law to the employer. 

What is CTC?

CTC means Cost-To-Company. The total cost that an employer would incur, on an employee in a year is called CTC. Every month salary and other benefits that the company pays on an employee is actually a cost to the company. CTC package is a term often used by private sector Indian companies while making an offer of employment.

What are the components of CTC and Salary?

CTC contains all taxable, non-taxable, and statutory contribution amounts paid and payable on-behalf of the employee. All the below mentioned are a part of the in-hand salary, and therefore, is the part of the CTC;

Basic, HRA, LTA,Education Allowance, Special Allowance, Telephone/Internet Reimbursement, Car & Petrol Reimbursement, Meal Coupon, Book & Periodicals Reimbursement.

Apart from the above, the statutory contribution and retiral benefit comprises a major part of CTC with which the employee knows how much deduction and benefits will he gets.

On what date should you pay salary to employees?

Usually, most companies pay salaries on the 30th or 31st of every month, but as per the Code of Wage Act, it should be paid by the 7th of next month if employee strength is up to 1000 and for those above can pay till the 10th of next month.

To meet the statutory deadline, it is always preferred to pay a salary before the 7th of next month since the salary tax payment deadline is the 7th of next month and thereafter 15th for PF and ESIC.

What points to considered while designing a new CTC?

An employee’s salary is determined by several parameters like employees' profession, skillsets and years of experience, location of the profession, salary structure.

The Basic salary amount should be equal or greater than the state minimum wage rate.

Statutory contribution should be applied based on central and state law which is applicable to the organisation.

Allocate tax-friendly components which result in an increase in employees monthly take-home salary

Download PayHR Excel CTC salary calculator : Click here to Download Excel CTC Calculator file

Some of the various components of salaries with applicable statutory limit are as follows

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To know more about Income tax saving guidelines, click here: Income Tax Saving Guidelines for Employee's

Download Excel CTC Calculator

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PayHR EXCEL CTC Salary calculator:

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