Understanding Your "In-Hand" Salary: How to Decode Job Offers Without Missing Opportunities

Hi friends,

Whenever we switch our jobs, we have one question in our mind: what would be our in-hand salary?

Most of us lose many good opportunities because we fail to understand what the term Cost to Company or CTC means. We calculate the "in-hand" salary but don't bother to understand what our salary slip carries.

Under Salary, you have basic salary, which is the main component of your salary slip. The break-up of your entire CTC is based on your basic salary. Your basic is also taxable as per the Income Tax rule.

Certain parts of your salary are exempt from tax while some components are taxable, unless you submit bills and other proof.

The amount in hand may get reduced because of two reasons:

1. Taxation (which is the extent to which your salary is reduced).
2. Deductions, which are made and kept aside for future savings or till such time that they are claimed as tax exempt or taxable.

Taxation Components

Under taxation components, you have Income Tax and Profession Tax. These are sure deductions.

Income Tax

Income Tax is set by the Government. It mainly deals with the investment that you make if you are drawing a higher salary.

For women, there is a tax exemption up to a salary of Rs.1,45,000. But those who earn above this bracket are required to pay income tax. If you produce investment documents, then you get an exemption.

Profession Tax

Profession Tax is a rule imposed by the Maharashtra Government. This means that if you are a salaried employee, you are required to pay profession tax.

The slab of deduction goes as follows:

Gross Salary Tax Payable

Upto Rs.2500 Not Taxable

Rs.2500 - Rs.3500 Rs.60

Rs.3500 - Rs.5000 Rs.120

Rs.5000 - Rs.10,000 Rs.175

Rs.10,000 and above Rs.200

However, the slabs for deductions vary from state to state.

Deductions

Under deductions, you have Transport Allowance, LTA, Provident Fund, Medical, and HRA.

Transport Allowance

The company gives you transport allowance to meet the expenses that you incur to commute from home to your workplace. An amount of up to Rs.800 per month is exempt from tax.

LTA (Leave Travel Allowance)

LTA is a concession that an employer may pay you as a reimbursement towards any travel expenses within India that you may incur while on leave. These travel expenses may be incurred by you and your family.

To claim LTA, you have to submit your travel tickets, hotel bills, and food bills. You can reclaim the amount that your bills work out to.

However, you can claim your LTA only twice in four years.

Provident Fund

When you get your salary in hand, the amount towards PF for employer's contribution, as well as the amount towards PF for employee contribution, will be deducted.

You may feel that because of PF you are losing a lot from your salary. But don't worry, the PF ultimately goes into your kitty. When you resign, you can claim your PF savings or transfer it to your new PF account with the new company.

Medical

Medical is usually paid out with salary if you submit the bills; else this amount will also not be credited each month.

If you don't submit medical bills (up to a maximum of Rs.15,000 or your medical allowance, whichever is lower), you will have to pay tax on this component of your salary as well.

HRA (House Rent Allowance)

HRA is given to you as compensation for any rent that you may be paying towards house accommodation; i.e., only if you are actually paying rent. If you produce the bills, you get an exemption up to 50%.

So, the next time you are made a job offer, do not turn it down on the basis of the "in-hand" aspect. You just might miss out on a good opportunity.

KATYANA

Can you elaborate in detail? I mean, if the employee is on a probationary period for 6 months, then how is the tax deducted, and how is it calculated for women employees?

Informative, thanks. Keep posting. However, I feel the terms are not elaborated enough. Anyways, at least new joiners or any candidates joining the company will benefit from this published information.

Hi Katyana,

Your posting is very informative. Thanks for the efforts. I do have one question; as you have mentioned, "When you get your salary in hand, the amount towards PF for the employer's contribution, as well as the amount towards PF for employee contribution, will be deducted." Is the employer's contribution also deducted from the employee's salary?

Please reply.

Regards,
Anu

Dear Friends,

Few thoughts on CTC and take-home salary.

CTC is the total cost a company incurs on an employee. It is a good concept by which the employee is offered monthly components and annual components. For the employee, he can avail IT exemption for annual components in the form of LTA, medical allowance, etc. Instead of drawing the full salary every month and spending without any planning, he can take the family on vacation or take care of medical expenses, thereby fulfilling his family obligations. This also brings the loyalty of the family to the organization. For the employer, the monthly salary bill is kept under control, and he can utilize the annual component portion into business to look for more profit and, obviously, more increments and facilities for staff. Employers can make one-time provisions in the month of March/April to release all annual components.

But of late, organizations are adopting unfair practices. They include gratuity payable to the employee (whether the employee is eligible for gratuity or not), transport costs, staff welfare like supplying tea, coffee, discounts offered on buying the company's products, etc. By adding all these components, the CTC is like a big balloon. But when it comes to take-home (you deduct all hidden components, including the employer's contribution to PF, which I explained above), it is a flattened balloon.

As an HR professional, I make sure that prospective candidates are fully explained about the salary components, including take-home and annual components. I am for fairness and transparency in finalizing salary. HR professionals should not mislead candidates by showing dreams. While we should implement the company's policies, we should also be fair, open, and transparent with the candidates. Otherwise, that employee will always have a grievance, which will lead to negativity and ultimately become an HR issue. Of course, we have to handle one more HR issue along with the existing one.

Regards,

BHAVAN

Hi,

Really very informative. Nice one.

Anu-
"When you get your salary in hand, the amount towards PF for employer's contribution, as well as the amount towards PF for employee contribution, will be deducted."

Well, this depends on company to company. In many companies, the employer deducts PF amount (both sides – double deduction) from the employee's salary only. In many companies, the deduction is from one side. For example, if I am adding 12% to the PF account, the employer will add the same without deducting from my salary.

If I am wrong, then please let us know.

Thanks for sharing.