Cost to Company

CTC = Gross Salary + [Direct Benefits + Indirect Benefits + Savings

Contributions] (or Deductions)
Components of CTC

Some components of CTC are Gross Salary which comprise of:

Basic Salary,
• HRA or House Rent Allowance
• Conveyance Allowance
• Entertainment Allowance
• Overtime Allowance and
• Medical Reimbursements
• Provident Fund of PF
• Medical Insurance
• On the other hand, the Deduction bit comprises of
Professional Tax, TDS or tax deducted at source and PF/EPF
contributions. So we can represent CTC as a sum total of
Earnings and Deductions.

CTC = Earnings + Deductions

• Here, Earnings = Basic Salary + Dearness Allowance + House

Rent Allowance + Conveyance Allowance + Medical Allowance
+ Special Allowance.
EARNINGS (A) DEDUCTIONS (B)
Provident
Basic 20000   2880
Fund
Dearness Professional
4000 200
Allowance Tax
House Rent Tax Deducted
9600 4042
Allowance at Source
Conveyance Other
800 2000
Allowance Deductions
Other
5600
Allowances
Total(A) = 40000 Total(B) = 9122
GROSS SALARY = 40000
NET SALARY = 30878
 Basic salary
Basic salary refers to the amount of money that an
employee receives prior to any extras being added
or payments deducted. It excludes bonuses,
overtime pay or any other potential compensation
from an employer. The whole amount of basic salary
is part of the take-home salary. Basic salary is fully
taxable.

Basic salary forms the core of the salary structure,

constituting for 40-45% of the total CTC. Other
salary components like Gratuity, Provident Fund and
ESIC are determined according to the basic salary.
 Gross salary
gross salary includes not just the employee’s base
pay, but also any additional earnings. Say, if an
employee puts in extra hours or is the recipient of an
incentive bonus, the additional earnings shall appear
in the individual’s gross pay. It must be noted that
gross salary does not include any deductions made.
It is the salary paid after totalling all benefits and
allowances, but before making deductions like
employee provident fund (EPF) and taxes.
 Net Salary
• Net salary, also known as take-home salary, is the
amount of money that you will receive after all
deductions. The deductions are made from the CTC
and include things like income tax (TDS),
professional tax, Public Provident Fund (PPF), etc.
 Allowance
• An allowance is the financial benefit given to the
employee by the employer over and above the regular
salary. These benefits are provided to cover expenses
which may be incurred to facilitate the discharge of
service.
• For example Conveyance Allowance is paid to foot
expenses incurred for commuting to workplace. Some of
these allowances are taxable under the head Salaries. A
few of them again could be partly taxable and few others
non-taxable or fully exempt from taxes.
Taxable Allowances
• Dearness Allowance
• Entertainment Allowance
• Overtime Allowance
• City Compensatory Allowance
• Interim Allowance
• Project Allowance
• Tiffin/Meals Allowance
• Cash Allowance
Partly Taxable
• House Rent Allowance (HRA)
• Fixed Medical Allowance
• Special Allowance
Non-Taxable
• Allowances paid to Government servants abroad
• Sumptuary allowances
• Allowance paid by UNO
• Compensatory allowance paid to judges
1. What is a PPF account?
Public Provident Fund(PPF) scheme is a long term investment option which
offers an attractive rate of interest and returns on the amount invested. The
interest earned and the returns are not taxable under income Tax. One has to
open an PPF account under this scheme and the amount deposited during a
year will be claimed under section 80C deductions.

2. How to open a PPF account?

A PPF account can be opened with either a Post Office or with any nationalized
bank like the State Bank of India or Punjab National Bank, etc. These days, even
certain private banks like ICICI, HDFC and Axis Bank among others are
authorized to provide this facility. You need to submit the duly filled application
form along with the required documents i.e. the KYC documents like identity
proof, address proof, and signature proof. Post submitting these documents you
can deposit a prescribed amount towards the opening of the account.

3. What is the interest rate on PPF?

The current interest rate is 8% (for quarter October to December 2018 prior to
which it was 7.6%) that is compounded annually. The Finance Ministry set the
interest rate every year, which is paid on 31st March. The interest is calculated
on the lowest balance between the close of the fifth day and last day or every
month
FORM 16
 • Form 16 is the certificate issued under section 203 of the Income tax Act for
tax deducted at source (TDS) from income under the head 'salary'. It is
issued on deduction of tax by the employer from an employee's salary and
deposit of the same with the government. The certificate provides a
detailed summary of the amount paid or credited to the employee and the
TDS on the same. This form is issued annually in accordance with the
provisions of the Income Tax Act normally after the end of the financial year
for which it is issued.
It is compulsory for the employer to issue the certificate to the taxpayer.

What is part A of Form 16?

Part A of Form 16 comprises of the details of tax deducted at source on salary.
It is generated and downloaded from the TRACES portal by the employer.

Part A of Form 16 includes the following:

• Name and address of the employer
• PAN (Permanent Account Number) and TAN of employer
• PAN of the employee
• Summary of the amount paid or credited, and tax deducted at source as
mentioned in respect of the employee
What is part B of Form 16?
• It is an annexure to Part A of Form 16 which has to be issued by
the employer.
Part B of Form 16 includes the following:
Detailed salary breakup
• Allowance to the extent exempt under section 10
• Deductions allowed under Chapter VI-A of the Income Tax Act
• Relief under section 89
perquisite
It is defined as any casual emolument, free or
profit attached to an office or position, in
addition to salaries or wages . It is simply
known as non - monetary benefits provided
by an employer to an employee.
Examples OF Perquisites
 Free medical facilities or reimbursement of medical
expenditure : exempted up to Rs. 15,000 p.a.
 Free education
 Any rent free residential
 Accident insurance premium
 Interest free loan : does not exceed Rs. 20,000
 Free recreational facilities
 Any amount contributed by employee towards pension
 Computers, laptops given to employees for office use
 Free meals given at remote area or offshore
 Professional TAX
Professional tax is the tax by the state governments in India. Anyone earning an
income from salary or anyone practicing a profession such as chartered
accountant, company secretary, lawyer, doctor etc. are required to pay this
professional tax. Different states have different rates and methods of collection.

Professional tax is imposed at the state level. Different states have different rates
and methods of collection. However, not all states impose this tax .

The professional tax is a source of revenue for the State Governments. It is also
payable by members of staff employed in private companies
 The owner of business is responsible to deduct professional
tax from the salaries of his employees and submit the
amount so collected to the appropriate Govt. department.

 He has to provide a return to the tax department in the

prescribed form within the specified time.

 The return should include the proof of tax payment. In case

the payment proof is not enclosed, the return shall be
deemed incomplete and invalid