Reduction in Take Home Salary - Important for all graduating in 2013 and beyond


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Anusheel Shrivastava

Correction required - "Employee’s contributions to Provident Fund – Is always 12% of the basic salary"- Actually it is minimum 12%, an employee can always contribute more if he wants, but employer will not match the increased contribution. Although most people don't use the options of increasing, but many people use it, specially those who are going for some foreign jobs, so as to earn a secured 8.5% interest on a big amount. Though a tangential issue, but I pointed it out so that Junta reading this have right idea!

29 Dec, 2012 |

+Read Replies (1)

Prince Doshi

Yes its correct. The contribution is always 12% since from tax perspective, only 12% contribution is exempt from tax. Any contribution higher than that is taxable under the head 'Salary' and therefore it is not advisable to increase the contribution from more than 12%. Thanks for pointing out.

29 Dec, 2012 |


Pankaj

What about voluntary PF? Is it chargeable too? VPF is considered as contribution for tax exemption. Another query: Since base level for PF contribution is increased now, will it increase our CTC and reduce our take home salary

29 Dec, 2012 |

+Read Replies (2)

Prince Doshi

Yes its correct. The contribution is always 12% since from tax perspective, only 12% contribution is exempt from tax. Any contribution higher than that is taxable under the head 'Salary' and therefore it is not advisable to increase the contribution from more than 12%. Thanks for pointing out.

29 Dec, 2012 |

Prince Doshi

No your CTC will remain same but as explained above, your net take home salary will reduce. Your employer is not going to pay you more out of his own pocket and therefore, your total CTC will continue to remain same with reduced take home salary. Employee's contribution to PF is included in your taxable income. But, the same will be allowed as deduction under section 80C (maximum of Rs 1 lac). On account of this deduction, employee's contribution to PF is considered as exempt from tax and therefore you are right in considering VPF as contribution for tax exemption. But there is a thin line of difference between exemption and deduction. Separately, employer's contribution to PF in excess of 12% of salary will always be taxable. Hope this may clarify your doubt.

29 Dec, 2012 |


Shashank

In the table you mentioned Take Home salary as 651000, but the CTC was supposed to be 650000. Don't you think the take home would be much lesser considering tds and other deductions?

30 Dec, 2012 |

+Read Replies (3)

Prince Doshi

Yes its correct. The contribution is always 12% since from tax perspective, only 12% contribution is exempt from tax. Any contribution higher than that is taxable under the head 'Salary' and therefore it is not advisable to increase the contribution from more than 12%. Thanks for pointing out.

29 Dec, 2012 |

Prince Doshi

No your CTC will remain same but as explained above, your net take home salary will reduce. Your employer is not going to pay you more out of his own pocket and therefore, your total CTC will continue to remain same with reduced take home salary. Employee's contribution to PF is included in your taxable income. But, the same will be allowed as deduction under section 80C (maximum of Rs 1 lac). On account of this deduction, employee's contribution to PF is considered as exempt from tax and therefore you are right in considering VPF as contribution for tax exemption. But there is a thin line of difference between exemption and deduction. Separately, employer's contribution to PF in excess of 12% of salary will always be taxable. Hope this may clarify your doubt.

29 Dec, 2012 |

Prince Doshi

Ur take home salary is 651000 (ie greater than CTC of 650,000) on account of the bonus component of Rs 100,000 which I have considered in the above example that is over and above ur CTC. Ur take home is lesser. Ur take home is 651,000 on your income of Rs 750,000 (CTC of 650,000 + Bonus of 100,000). Hope this clarifies ur query.

30 Dec, 2012 |