Calculating your taxable income and knowing the amount you have saved is an important part of managing your finances and ensuring that you are paying the correct amount of tax. Calculating your taxable income and determining the amount of tax you will pay in India can be a complex process. However, you can follow the step-by-step guide to calculate CTC for taxable income &, know the amount saved, and learn how to use a CTC calculator.

What is CTC (Cost to Company)?

Cost to company (CTC) is a term used to describe the total cost of employing an employee, including all the direct and indirect costs incurred by the employer. In India, CTC is typically used to determine the salary package offered to an employee.

Calculating taxable income helps you to make informed financial decisions.

The components of CTC may vary from company to company, but it typically includes the following:

  • Basic salary: The fixed monthly salary paid to the employee is typically a small percentage of the CTC.
  • House rent allowance (HRA): This is an allowance paid to the employee to cover the cost of renting a house.
  • Provident fund (PF): This is a retirement savings scheme where both the employee and the employer contribute a certain percentage of the employee's salary.
  • Gratuity: This is a lump sum payment made to the employee at the time of separation from the company.
  • Medical insurance: This is coverage provided by the employer for the employee and their family.
  • Leave travel allowance (LTA): This is an allowance provided to the employee to cover the cost of travel during the annual leave.
  • Other perks and benefits: Some companies may also include other perks and benefits in the CTC, such as a company car, mobile phone allowance, etc.

It is important to note that not all the components of CTC are taxable. Some components, such as basic salary, HRA, and medical insurance, are taxable, while others, such as PF and gratuity, are tax-free.

What is a CTC calculator and how to use it?

CTC calculator is a tool that helps you calculate the total cost of employing an employee, including all the direct and indirect costs incurred by the employer. A CTC calculator can help you understand the total value of your salary package and how it is composed. Hence, it increases transparency and helps you make informed decisions

  1. Gather all the necessary information: To use a CTC calculator, you will need to have the following information at hand Basic salary, House rent allowance, Provident fund, Gratuity, Medical insurance, etc.
  2. Enter the information into the CTC calculator: Once you have all the necessary information, you can enter it into the CTC calculator.
  3. Calculate the CTC: Once you have entered all the necessary information, you can press the "calculate" button to get the CTC. The CTC calculator will add up all the components of the CTC and provide you with the total cost of employing the employee.

CTC calculator is an important tool for employees.

A CTC calculator not only helps you to calculate the total value of your salary package, but it also helps you to analyze whether you should take the job or not. However, you must remember that CTC calculators are estimates and may not reflect your salary and benefits. To confirm the details of your salary and benefits with your employer.

Guide to help you calculate your taxable income

Here is a step-by-step guide to help you calculate your taxable income and determine the amount of tax you will pay:

1.   Determine your gross total income

Your gross income is the total of all the income you earned during the financial year (April 1 to March 31), including salary, rental income, interest income, capital gains, TA, DA, and any other income. You also need to add the bonus received.

2.   Deduct allowed deductions and exemptions

You can deduct certain deductions and exemptions from your total gross income to determine your taxable income. Some common deductions and exemptions include:

  • Section 80C deductions include investments in certain tax-saving instruments, such as life insurance premiums, public provident fund (PPF), and employee provident fund (EPF). The maximum deduction allowed under this section is INR 1.5 lakh.
  • House rent allowance (HRA): If you live in a rented house, you can claim a deduction for the HRA received as part of your salary. The deduction is the least: actual HRA received, rent paid minus 10% of your salary, and 50% of your salary (40% if you live in a non-metro city.
  • Other deductions: There are several other deductions available under the Income Tax Act, such as deductions for charitable donations, interest on home loans, and more.

3.   Calculate your taxable income

Once you have deducted all the allowed deductions and exemptions from your total gross income, the remaining amount is your taxable income.

4.   Determine your tax liability

Based on your taxable income, you must pay tax at the applicable tax rates. The current tax slabs in India are -

  1. Slab 1 - Individuals earning up to Rs 2.5 lakh per annum pay 0% tax on their income.
  2. Slab 2 - The next tier applies to those who earn between Rs 2.5 lakh and Rs 5 lakh per annum. In this range, people pay 5% of their income in taxes.
  3. Slab 3 - The third tier applies to those who earn between Rs 5 lakh and Rs 10 lakh. In this range, people pay 20% of their income in taxes.
  4. Slab 4 - The fourth and highest tier applies to individuals who earn more than Rs 10 lakh per annum. In this tax bracket, people pay 30% tax on their income.

5.   Determine the Amount of Tax Saved

To determine the amount of tax saved, you can subtract the tax liability from the total tax you would have had to pay without availing of any deductions or exemptions.

Conclusion

Calculating your taxable income and determining the amount you have saved is an important part of managing your finances and ensuring that you are paying the correct amount of tax. This helps you to ensure that you are paying the appropriate amount of tax. It is important to regularly review and update your taxable income calculations to ensure that you accurately report your income and pay the correct amount of tax. You can also use a CTC calculator to estimate tax liabilities, which can be helpful for tax planning purposes.