New to Payroll? How Do Payslip Calculations Work for Freshers in an MNC?

I am a fresher just started to work in an MNC. Please, can anyone help me regarding the payroll part? I would like to understand how the payslip is prepared, what the calculations for Basic, TA, DA, and other allowances are, and how the gross and net salary is calculated. I am also curious about TDS, arrears, and the taxes that are deducted. If anyone could provide me with a sample payslip, I would be very thankful.

Payroll is usually handled by the finance team or the designated HR executive who manages the payments and reimbursements of employees. Companies process their payroll using payroll software.

Basic Computation of Salary Components

Below is the basic computation of salary components commonly practiced by firms. The breakdown may vary based on the company's own policies:

- Basic Pay: 50% of Gross Salary
- House Rent Allowance: 40% of Basic Pay
- Conveyance Allowance: 1600 (above this figure becomes taxable)
- Medical Allowance: Usually 1250
- PF: 12% of Basic Salary + DA of the Employee (8.33% goes to EPS and 3.67% goes to EPF). The employer contributes 13% (12% plus 1% for PF Charges and EDLI Charges).

Recent changes require all allowances to be included in the calculation of Basic Salary + DA, except for HRA. It is recommended to stay updated on the latest news for any revisions.

Additional Deductions

Additional deductions may include TDS for taxable salaries (FY 2019-2020, CTC above 5 lakhs). TDS is deducted before the final income is distributed to the employee and is deposited with the government for taxable incomes. Employees can explore deductions under 80C-80RRB by investing in options like PPF, LIC policies, medical expenses, charitable donations, etc. Professional tax varies by state rules, group health insurance, ESI (5% - 4% contributed by the employee and 1% by the employer for gross salaries up to Rs 21000), among others.

Net Take-Home Salary Calculation

The formula for calculating the net take-home salary is Gross Pay - Deductions = Net Take-Home Salary.

For further clarification, senior members can provide better guidance. A sample salary slip is attached for your reference.

Thanks and Regards,
Akash Sharma

The Cost to Company (CTC) of an employee is typically structured as follows:

1. Basic salary ranges from 40-60% of the Gross Salary.
2. House Rent Allowance (HRA) is usually set at 30-40% of the Basic salary.
3. The remaining amount is distributed according to the tax norms of the state and central government.
4. In the Deductions section, the focus is on the Employee Provident Fund (EPF), which is set at 12% of the employee's salary, limited to Rs. 15,000.

This structure ensures a fair allocation of the employee's compensation while also complying with tax regulations.