5 questions about your salary structure you were too afraid to ask

Has this ever happened to you while starting a new job? You spend several days swapping counter offers with the HR recruiter to arrive at that one perfect number, only realise at the end of the first month that you see credited in your account it’s quite what you bargained for? This usually happens when you either made a mistake while calculating your take-home pay or didn’t realise that what you get at the end of the month isn’t what you’re getting in hand.
In the interest of better understanding the various components in your salary, here is our handy guide.
What is gross pay/ cost to company (CTC)?
This is probably the biggest number you would be personally associated with this year, and yet, it’s just out of reach. It’s what you build your dreams and future plans on. Your gross pay is the total of all the components listed in your offer letter or salary structure and does not feature any deductions of any sort. In some cases the CTC also features non-monetary benefits like free food or gym access.
What is net pay/ in-hand pay?
Net or in-hand pay is the one number that never fails to elicit a reaction, except maybe the phone number of that pretty girl in accounting. This is the amount that gets deposited in your account every month after deducting taxes, reimbursable components, EPF and gratuity. Sadly, this number is always just short of how much it costs to splurge on the things you desire and manage to have savings.
What is Basic Pay?
This is the core of your salary structure. Basic Pay is what your company pays without factoring in any additions or deductions to your salary. This component comprises a maximum of 40% of your CTC and also serves as the base on which some other components are calculated. HRA or House Rent Allowance, for instance, is pegged at 50% of Basic Pay in metro cities and 40% in non-metro cities. Sadly, the basic pay is fully taxable
What is EPF?
EPF or Employees’ Provident Fund, is a component most employees love to hate. However, this salary component results in some serious long-term savings. While you contribute an amount equal to 12% of your basic pay, your employer matches this amount. The amount itself is tax-free, and earns tax-free interest, which get back upon retirement. You could also withdraw this amount before retirement, but under certain circumstances.
While EPF may seem like a double whammy — you don’t get what’s mentioned in your CTC every month and you end up shelling out the same amount — it’s for a very good cause.
What’s with all these other things like mobile reimbursements and fuel reimbursements and stuff?
Mobile reimbursements, fuel reimbursements, etc., are listed as individual components, and sometimes listed under flexible benefits or flexi pay. They are usually components that you can opt for.
With reimbursements like fuel, communications, etc, you need to submit bills, for which you get reimbursed.
Bonus: Why should I sign up for mobile reimbursements and fuel reimbursements and stuff?
The cool thing about these reimbursements is that they are all tax-saving reimbursements, meaning you don’t pay tax on amount offered to you. These reimbursements are prescribed by the Income Tax Act and help you save up to 30% in taxes. If you didn’t sign up to these benefits, their value would be added up and become a part of the taxable component of your salary. While the case to opt for these benefits may not be strong, seeing that the yearly tax saving may not seem like much, buy opting for them, you could possibly save in excess of up to Rs 80,000 in taxes every year!
