How Payroll calculations are done?
Payroll calculations usually constitute 4 main components – Basic pay, Allowances, Deductions, and IT Declarations. Income Tax is calculated on (Basic + Allowances – Deductions) * 12 – (IT Declarations + Standard deductions)
Gross Pay is the sum of Basic pay + Allowances.
Net Pay is the difference between Gross Pay – (Deductions + Total TDS). Total TDS is the sum of TDS, Surcharge, Health & Education Cess.
The amount received as the HRA from the employer. Actual rent paid less 10% of the basic salary and 50% of the basic salary if staying in a metro city and 40% in a non-metro city.
Deductions are the sum of PF, ESI, and PT etc.
- TDS is calculated on (Basic + Allowances – Deductions) * 12 – (IT Declarations + Standard deduction)
- PF deduction(Provident Fund) is 12% of Basic + PF applicable allowances or 15,000, which ever is lower
- ESI is 0.75% of – Gross Pay (Basic and LOP dependent allowances) or 21,000, whichever is lower
- Standard deduction (50,000)