How Do I Break Down My 3 Lakh CTC and Understand My Tax Liability?

Hi,

Can somebody help me out in salary breakup where my CTC is 3.00 lakhs per annum? Here, I want to break this down into Basic, HRA, Medical, TA, etc. Also, how much am I liable to pay in income tax and why?

Looking forward to kind inputs.

Kind Regards,
Rupendra

Hi,

Usually, 20-30% of the gross is fixed as basic salary. If you are giving 3 lakhs per annum, calculate for one month, which comes to 25,000. So, 30% of 25,000 is 7,500, which is the basic salary. The remaining salary should be divided into components such as HRA, conveyance, etc. Medical reimbursements shouldn't exceed 15,000 per annum, which translates to 1,250 per month. Anything beyond 15,000 is taxable, so we need to keep the maximum limit in mind. PF is 12% for both the employee and the employer. According to the rules, a company with more than 10 employees must provide ESI as well. The benefits offered may vary based on the company's policies and can include LTA. There are various ways to structure salary components depending on the company. Hope this information serves your purpose.

Thank you and regards,
Srikanth.

Hi,

Here I am giving below detailed salary break-up details. Please check:

- Basic: 30% of Gross salary
- HRA is on Basic: 40%
- Conveyance: $800 per month (taxable above $800)
- Medical allowance: $1250 (taxable above $1250)
- LTA: $1250 (taxable above $1250)
- Special allowance: the difference amount of Gross salary

If you wish, you can include Performance Bonus, attendance allowance, dating allowance, etc.

Regards,
P.S. Phani

Dear Rupendra,

I will provide another formula that will be tax-savvy as well. First, find out the city for which the salary is to be fixed. If it is a Metro, HRA up to 60% of Basic Pay can be tax-free, so adjust it accordingly. Medical Reimbursement up to Rs. 15,000.00 per annum is not taxable if proper bills are attached. A maximum of Rs. 65.00 per day can be allowed towards meals (either you provide meal vouchers or offer actual food). Assuming 250 working days, it amounts to Rs. 16,250.00 per annum. You can allocate a reasonable amount towards the purchase of uniforms and LTA as well. All other perks either attract income tax or Fringe Benefit Tax, so do not include them. The formula would be:

(Rs. 3.00 Lacs - Total of perks) divided by 1.60 would be the basic pay.

Let's go through a real exercise. Suppose the Uniform Allowance is Rs. 10,000.00 per annum and LTA is Rs. 15,000.00 per annum. Then the total perks amount to 15000 medical + 16250 meal + 25000 uniform and LTA = 56,250.00. Subtract this amount from 3.00 lacs. The balance is Rs. 2,43,750.00. Divide it by 1.60 = 1,52,344 or Rs. 12,695.00 per month is the basic pay and also the taxable income of the employee.

If you also want to deduct PF, then you need to adjust the PF amount as well. For instance, if you want to deduct PF on Rs. 6,500.00 only, then first subtract 12% of Rs. 6,500.00 multiplied by 12 months, i.e., Rs. 9,360.00 from Rs. 2,43,750.00. Then divide the remaining amount of Rs. 2,34,390 by 1.60 to arrive at the annual basic of Rs. 1,46,494.00. In this scenario, the taxable income would be 1.37 lakhs.

Suppose you want to deduct PF on the full basic, in that case, divide Rs. 2,43,750 by 1.72 (1.00 for basic + 0.60 for HRA and 0.12 for PF) to arrive at an annual basic of Rs. 1,41,715.00. In this case, the taxable income further reduces to Rs. 1.25 lakhs.

If you wish to further reduce taxable income, pay 15% of the basic towards the Superannuation Fund. In that case, Rs. 2,43,750 shall have to be divided by 1.87 (1.72 + 0.15 Superannuation), giving an annual basic of Rs. 1.30 and a taxable income of Rs. 1.15 lakhs.

KKT