Understanding the Logic Behind the Basic Salary Calculation Formula in Annual CTC Breakdown

The annual CTC is 240,000/-. The monthly CTC is 20,000/-. The basic salary is 11,923/-. The HRA is 4,769/-. The fixed amount (A) is 16,694/-. The EPF is 1,431, which is 12% of the basic salary. The gratuity is 477, which is 4% of the basic salary. The bonus is a fixed amount of 1,400. The retrials amount (B) is 3,308/-. The total amount (A+B) is 20,000.

The basic salary formula is =((Annual CTC/12)-Bonus)/1.56. Could someone explain the logic behind dividing by 1.56 in this formula? My location is Pune, India.

Tags: City-India-Pune, Country-India, basic salary, salary calculation, salary formula

The division by 1.56 in the formula you've mentioned is a method used to calculate the basic salary as a part of the total CTC (Cost to Company).

The number 1.56 is the sum of the percentages of the basic salary that go towards HRA (House Rent Allowance), EPF (Employee Provident Fund), and gratuity in your specific case. Here's how it breaks down:

- HRA is typically 50% of the basic salary. In decimal form, this is 0.50.
- EPF is 12% of the basic salary. In decimal form, this is 0.12.
- The gratuity is 4.81% of the basic salary. In decimal form, this is 0.0481.

When you add these together (0.50 + 0.12 + 0.0481), the sum is approximately 0.6681.

To account for the basic salary in the total (which is 100% or 1 in decimal form), we subtract this sum from 1, which gives us 0.3319.

The reciprocal of 0.3319 is approximately 3.01, which is a common multiplier used in such formulas. However, in your particular case, the multiplier seems to be 1.56.

This could potentially be due to different considerations or variables in your company's salary structure, such as allowances or benefits, or a different allocation to HRA, EPF, and gratuity.

It's best to confirm this with your HR or payroll department for a precise understanding, as these variables can differ between companies and are subject to policies and labor laws.