Salary is a fixed amount paid to an employee every month in return for the services performed by him or her for the employer. It is necessary for the salaried persons to know their take-home salary and plan their expenses, savings, and investments accordingly. As we know, there is the time value of money, which means that money you have now is worth more than the same amount in the future. Therefore, it is important to make well-informed investment decisions for which you must know the amount of salary received in the future. The take-home salary calculator can help you calculate your take-home salary in a few easy steps.
Salary comprises many components such as basic salary, allowances, perquisites, bonus, contribution to provident fund, etc. Before calculating the net take-home salary, let us understand these components:
- 1. Basic Salary: It is the minimum fixed amount paid to the employee, and it generally amounts to about 40%-50% of the total salary paid to the employee.
- Allowances: These are the monetary benefits paid for meeting specific expenses such as house rent allowance, dearness allowance, leave travel allowance, etc. Some allowances are fully taxable, some are partially taxable, and some are fully exempt from tax.
- Bonus: It is the payment made to an employee based on performance targets.
- 4. Contribution to Provident Fund: Both the employer and the employee contribute 12% of the basic salary to the provident fund each month. Employees’ contribution is tax-deductible.
- Professional Tax: The tax on employment charged by the state can be a maximum of Rs. 2500 in a financial year.
- Perquisites: These are other non-monetary benefits or facilities provided to the employer, such as free conveyance and phone facilities.
- Cost to Company (CTC): It is the total amount paid to the employee in all forms, that is, basic salary, allowances, bonus, contribution to provident fund and any other payments.
Now that you know the various components of salary, you can easily calculate the net take-home salary by using the take-home salary calculator in the following steps:
- Enter the amount of Cost to Company (CTC) and bonus. You can either enter a bonus percentage or the fixed amount of bonus.
- You will get the amount of Gross Salary.
Gross Salary = CTC (-) Bonus
- Enter the amount of monthly deductions from salary such as professional tax, income tax, employee contribution to provident fund, and other deductions, if any.
- You will get the amount of net take-home salary.
Net take-home salary = Gross Salary (-) Total deductions.
There are many benefits of using the take-home salary calculator. It is quick and easy to use. It gives you an idea of the amount of money you receive in hand to make decisions about your savings and investments and whether you need to take any loans to meet your needs. Further, before making an investment and loan decision, one must consider the time value of money, which simply is the amount of interest you can pay on your loans and debts and the amount of return or interest that you wish to earn on your investments.