Have you ever got confused with the terms mentioned in the salary slip like ‘CTC,’ ‘Provident Fund,’ or ‘HRA’? You are not alone! Many people are not acquainted with the salary components. Understanding the different terms linked with salary can make things easy. In this article, we will discuss the salary components and their calculation process to make it easier for you to understand.
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CTC
CTC or Cost to Company refers to the employee’s total package. This is the salary, allowances, and other monetary benefits employees receive from their company. Companies use the term CTC to accurately represent the additional cost of sustaining the employee from the organization’s standpoint.
Breakdown of CTC
Cost to Company= Gross Salary + Direct Benefits + Indirect Benefits
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Allowances
Employers provide various incentives over the basic pay to employees. Usually, allowances are given for distinct intentions. Employee benefits are provided to facilitate your job responsibilities and cover any financial costs you may incur.
Common allowances given to employers include Conveyance, medical, and house rent allowances. However, not all organisations offer the allowance. Allowance generally depends on the job, the employer’s policy, and several other factors.
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House Rent Allowance
Commonly, employees shift to different cities for their employment. The employees rent a house to live in the new city. This is where HRA is beneficial for them. HRA, known as House Rent Allowances, is the benefit provided to employees to pay extra living expenses. However, employees who don’t relocate but live in a rental house can benefit from HRA.
The HRA calculator can help you calculate the amount of tax you can save on House Rent Allowance.
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Gratuity
Gratuity is part of an employee’s salary which they receive from their orgnaisation when they leave their job after working for 5 years.Instead of giving the full tip amount all at once, the employer takes a part of it from the employee’s salary every year. This deduction is part of the employee’s overall pay package, which is called Cost to Company (CTC).
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Reimbursement
Sometimes, employees must be reimbursed for medical treatment, phone bills, newspaper bills, etc. The amount, however, is not given in hand, but by presenting the bills, you can get the spent amount, which is reimbursement. Generally, there are limits to every reimbursement.
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Employee Provident Fund
Employee Provident Fund, or PF, is a salary component and a prominent saving scheme for all employees. Every month, employers and employees contribute to the provident fund, an investment that serves as the retirement benefits scheme for employees.
With the help of Provident Fund Calculator, you can get a lump-sum amount.
It is directly deposited to the employee’s provident account after a certain period. If an employee stops working, they can no longer contribute to their Employee Provident Fund account.
Conclusion
Understanding these salary terms lets you strategically make informed decisions and easily know your take-home pay. Every component is key to your overall income, from salary allowance to provident fund.
