Basic pay is the base salary of an employee. Basic salary is the cash paid to employee excluding overtime or bonus, allowances (Basic salary is a payment to the employees by their employers in return for work performance of professional duties by the individual employee. Base salary excludes bonuses, benefits or any other allowances from the employers. Basic salary is the core of the salary of an employee. It is a fixed amount of the payment structure of an employee. To calculate basic pay one should exclude every allowance and bonus given by the employer.
Gross salary calculation in India consists of following terms
Basic Salary: employee basic salary will not vary and remains a constant always. The entire payment of basic salary will be part of employee in-hand salary.
Allowances: these are part of employee salary structure; employee will receive a number of allowances by their employer which help to take care of cost of living
House Rent Allowance (HRA): HRA is part of the CTC an employer provides its employees. HRA provides or comes with tax benefits in case employees employer provides accommodation pay up to 10% in hand salary
Leave Travel Allowance (LTA): LTA is yet another tax-exempt element of a CTC which is provided for employees to cover their travel expenses anywhere within the country. Note that an LTA only pays for the travel allowance not for other expenditures like food, drinks, and the like.
Dearness Allowance (DA): to mitigate inflation problems Dearness Allowances are issued by the employer
Other such allowances include medical and health care services, vehicle, mobile phone, incentives, and special allowances.
Gross salary is excluding EPF and other deductions including allowances is called gross salary
To calculate gross salary let us consider the example
Let’s elucidate what CTC looks like with an example:
Employee hired by a company at a CTC i.e. cost to company of Rs. 4, 00,000.
Employee’s yearly income is stated below:
Basic Salary: Rs. 2, 20,000
HRA: Rs. 88,000
CA: Rs. 19,200
Medical Expenses: Rs. 15,000
EPF Contributions: Rs. 21,600
Gratuity: Rs. 18,326
Special Allowance: Rs. 17,874
Gross salary is = Basic pay+ HRA (House Rent Allowance) + DA (Dearness Allowance) + MA (monthly allowances)
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