Salary Tax Breakdown – Decode Your Paycheck
Ever wondered why the salary credited to your bank account is significantly lower than the package you were offered? The gap between "Cost to Company" (CTC) and "In-Hand Salary" can be confusing and frustrating.
Our Salary Tax Breakdown Calculator is here to demystify your payslip. It breaks down your CTC into its various components, calculates your tax liability under the latest tax regimes, and shows you exactly where your money is going—and how much you get to keep.
From CTC to Bank Account: The Journey
Your salary undergoes several cuts before it reaches you. Understanding these can help you negotiate better and plan your taxes.
CTC (Cost to Company)
This is the total expense the company spends on you. It includes your take-home pay, plus employer's PF contribution, insurance premiums, and variable bonuses.
Fixed vs. Variable
A large part of your CTC might be "Variable Pay" or "Performance Bonus," which is not guaranteed and is paid annually or quarterly, reducing your monthly inflow.
Deductions
Mandatory deductions like Provident Fund (PF), Professional Tax (PT), and Income Tax (TDS) are subtracted from your Gross Salary every month.
Allowances
Components like HRA (House Rent Allowance) and LTA (Leave Travel Allowance) are part of your salary that can be claimed as tax exemptions to lower your tax burden.
Frequently Asked Questions (FAQs)
Which tax regime is better: Old or New?
The New Regime offers lower tax rates but disallows most exemptions (HRA, 80C). The Old Regime has higher rates but allows deductions. Generally, if your total deductions exceed ₹3.75 Lakhs, the Old Regime is beneficial; otherwise, the New Regime is better.
What is Professional Tax?
Professional Tax is a state-level tax levied on salaried employees. The amount varies by state but is capped at ₹2,500 per year. It is deducted directly from your salary by the employer.
Is HRA fully tax-exempt?
No. The HRA exemption is the lowest of three values: 1) Actual HRA received, 2) Actual rent paid minus 10% of Basic Salary, or 3) 50% of Basic Salary (for metros) / 40% (for non-metros).
What is Special Allowance?
Special Allowance is a balancing component in your salary structure. It is fully taxable and does not attract any specific exemptions. It is used to round off the CTC to the agreed amount.
Why is my in-hand salary lower in March?
Employers often deduct any remaining tax liability for the financial year in the last few months (Jan-March). If you haven't submitted investment proofs on time, a higher TDS will be deducted, reducing your March pay.