How Payroll calculations are done?
Payroll calculations usually constitute 4 main components : Basic pay, Allowances, Deductions, and IT Declarations. Using a payroll calculator can streamline this process, ensuring precise calculations for each employee's earnings, taxes, and net pay.
Gross Pay
Gross Pay is the sum of Basic pay + Allowances.
Net Pay
Net Pay is the difference between Gross Pay – (Deductions + Total TDS). Total TDS is the sum of Income Tax, Surcharge, Health & Education Cess.
Basic Pay
Basic Pay is 50% of Gross salary (Gross * 0.5)
HRA
Provident Fund
PF deduction (Provident Fund) is calculated on 12% of Basic + PF applicable allowances.
Employee State Insurance
ESI is calculated on 0.75% of Gross Pay (Basic and ESI applicable allowances)
Payroll Calculator
Allowances
Deductions
Old Tax Regime
New Tax Regime
Rules for calculating payroll taxes
- Income Tax formula for old tax regime = (Basic + Allowances – Deductions) * 12 – (IT Declarations + Standard deduction)
- Deductions are the sum of ESI and PT etc.
- Standard deduction (50,000)
- Income Tax formula for new tax regime = (Basic + Allowances – Deductions (ESI)) * 12 – (Standard deduction)
- Only ESI is considered as a deduction.
- Standard Deduction (50,000)
- Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJA)
- Interest on housing loan (Section 24)
- House Rent Allowance
- Profession Tax
- Children Education Allowance
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