Salary Structures in India : All you need to know – Clovehrms
As an employee, you must know what your salary is to plan your monthly budget, plan taxes, and many more. However, knowing your salary is not a very simple task, as many people don’t know what a salary actually is. Yes, while you may think that your salary is a fixed amount you get every month, you must know that it can actually differ each month due to the various components it has.
Not only this, but you should also know the difference between your CTC and your actual salary. So, to help you understand your salary, here’s a blog with everything you need to know about the salary structure in India.
What is CTC?
CTC stands for Cost to Company. It is a comprehensive term that includes the total expenses your employer incurs for you (employee) in a year. As per the salary structure of India, CTC consists of basic salary, additional benefits as well as allowances, deductions and bonuses. Moreover, it is very important to understand CTC as it contains various components of your salary.
The salary structure of India includes basic percentage in salary, allowance, incentives and more in CTC. It also includes your contributions like Provident Fund (PF). Furthermore, the PF percentage in CTC is a very important element. It reflects the compulsory savings component that gets deducted from your salary. While CTC can seem like a huge amount, you must know that it includes both fixed and variable income. So, there is a significant impact on your take-home pay that is never equal to CTC. Hence, knowing what is the fixed component in salary within CTC will help you to know the fixed part of your earning. So, you can do effective financial planning.
What is a Fixed Component in Salary?
The fixed component in salary refers to the guaranteed portion of your earnings that you get paid regularly. It is the amount that is paid to you irrespective of your performance or other variable factors. Your fixed salary components form the backbone of your monthly income. So, it is essential for your financial stability and planning. Hence, it is important to understand the salary structure in India that constitutes the fixed component of your salary.
| Components of Fixed Salary | Description |
|---|---|
| Basic Salary | It is the main component of your fixed salary. So, it serves as the foundation for other salary components. Moreover, it makes up about 40-60% of your total salary package. Hence, it is important in determining your various benefits and allowances. The basic percentage in salary affects other components like PF, gratuity etc directly. |
| House Rent Allowance (HRA) | House Rent allowance also makes up a significant portion of your salary. It is offered to you to cover your housing expenses. The HRA amount can differ depending upon your location. So, if you live in metropolitan cities then you get a higher percentage of HRA as compared to non-metro areas. |
| Leave Travel Allowance (LTA) | Another fixed component that pays for your travel expenses during vacation is LTA. It is designed in such a manner that it covers the costs of your travel along with your family in India. Typically, Leave Travel Allowance is offered once or twice in a block of four years. However, it varies from company to company as per their policies. |
| Conveyance Allowance | It is offered to you to cover your commuting expenses from home to your workplace and vice versa. Most companies offer a fixed monthly amount of conveyance allowance. Moreover, it may also be tax-exempt up to a certain limit. |
| Medical Allowance | As the name suggests it is provided to cover your medical expenses. However, after the introduction of standard deduction, this allowance has been removed since 2018. |
| Special Allowance | Special allowance is a flexible component. So, it can include other fixed payments that do not fall under the above mentioned categories. |
| Child Education Allowance | It covers your children’s tuition fees. Moreover, it is tax deductible up to Rs. 100 per month for a maximum of two children. |
Good to Read:- What is Salary Advances ? | Meaning & Definition
What are Deductibles in Salary?
Deductible in salary is the amount that gets subtracted from your gross salary. As a result the amount that is left behind is the net salary that you get paid. Typically, these deductions are mandated by the law of your company’s policy. So, it can include various statutory contributions and taxes as well. Hence, it is important to know the details of these deductibles in the salary structure of india.
1) Tax Deducted at Source (TDS)
It is the primary deductive amount of your salary. In TDS your employer deducts a certain percentage of your salary as income tax before you get your salary. This amount is based on your annual income, applicable tax slabs and declaration of investments and savings. MOst importantly, you can remit this deducted tax on your behalf. Also, it is adjustable against your total tax liability at the end of the financial year.
2) Provident Fund (PF)
Provident Fund (PF) forms another significant part of your salary deduction. It is aimed at ensuring that you have a retirement corpus. Mostly, 12% of your basic salary and dearness allowance is deducted towards PF. The PF percentage in CTC will directly impact your salary. Besides, your contribution is directed to your PF account. It can then earn interest and you can withdraw it under certain conditions like retirement, job change or other situations. This deduction is a key component of the components of pay structure in India. It is because it ensures your long-term financial security.
| Salary Component | TDS | PF |
|---|---|---|
| Basic Salary | Yes | Yes |
| House Rent Allowance (HRA) | Yes | No |
| Leave Travel Allowance (LTA) | Yes | No |
| Conveyance Allowance | No | No |
| Medical Allowance | Yes | No |
| Special Allowance | Yes | Yes |
| Child Education Allowance | No | No |
Good to Read:- What Salary Arrears And How Do They Work
Conclusion
Understanding the various components of your salary is essential for effective financial planning. This guide provides a comprehensive overview of the salary structure in India, including fixed and variable components, allowances, and deductions. By knowing your CTC and actual salary, you can better manage your monthly budget and tax obligations, ensuring financial stability and informed decision-making.
