How Payroll calculations are done?
Payroll calculations usually constitute 4 main components – Basic pay, Allowances, Deductions, and IT Declarations. Income Tax is calculated from the Gross – Deductions.
Gross Pay is the sum total of Basic pay + Dearness Allowance + House Rent Allowance + Other Allowance.
Net Pay is the difference between Gross Pay – (Deductions + Total TDS). Total TDS is the sum total of TDS and 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 deductions (Rs 50,000))
- PF deduction(Provident Fund) is 12% of Basic or 15,000(Basic * 0.12), which ever is lower
- ESI is 0.75% of – Gross Pay or 21,000, whichever is lower
- Standard deductions (50,000).
IT Declarations is the sum of 80C, 80D, 80CCC, 80CCD etc.