How To Calculate Net Salary In 2019-20

Net salary is the take home salary that you will get after all the deductions, paying gratuity and EPF and the income taxes.

Taxation laws in India require that the taxes are calculated on your gross salary. To know your net salary or take home salary, you must deduct the taxes payable as per your income tax from the gross salary. Here are the steps to calculate the net salary in India in 2019-20.

Step-1

Know your CTC

CTC which is cost to company is the total amount that a company is spending on you. You will find the CTC mentioned in your appointment letter in most cases. CTC includes the direct and indirect benefits the company gives you, your contributions towards savings, all kinds of allowances, incentives, bonuses, company given accommodation and others.

Step-2

Calculate your gross salary

To get your gross salary, you must subtract the EPF and Gratuity from the CTC.

Case-1:

The gross salary of X getting CTC of Rs. 4,00,000 is as follows:

Gross Salary: CTC minus (Gratuity + EPF)

Gross salary: Rs. 4,00,000 minus (Rs. 21,600 - Rs. 18,326) = Rs. 3,60,074

The gross salary of X is Rs. 3,60,074

Case-2:

The gross salary of Y getting CTC of Rs. 6,00,000 is as follows:

Gross Salary: CTC minus (Gratuity + EPF)

Gross salary: Rs. 6,00,000 minus (Rs. 32,400 - Rs. 27,489) = Rs. 5,40,111

Y is getting a gross salary of Rs. 5,40,111

Step-3

Calculate your net salary

Since net salary is the take home salary after paying your income tax, you must know your tax slab and calculate the taxes you will have to pay. Here let us understand how net salary is calculated in the above mentioned cases.

Net Salary: Gross Salary minus (Income tax + Public Provident Fund + Professional Tax)

Case-1:

X is getting a gross salary of Rs. 3,60,074. The net salary in this case can be calculated as follows:

From Rs. 2,50,000 to Rs. 5,00,000, taxes will be charged as 5% of the total income that is more than Rs. 2.5 lakhs plus 4% cess.

X’s taxable income: 3,60,000 – 2,50,000 = 1,10,000.

5% of Rs. 1,10,000 = Rs. 5,500

4% cess of the income tax payable: Rs. 220

Total taxes payable: Rs. 5,720.

Net salary: Gross Salary – taxes paid

Net salary of X is 3,60,000 – 5,720 = 3,54,280.

Case-2:

Y is getting a gross salary of Rs. 5,40,111. The net salary in this case can be calculated as follows:

Y comes in the tax slab of Rs. 5,00,001 to Rs. 10,00,000.

In this case the income tax will be calculated as 20% of the total income that is more than Rs 5 lakhs + 12,500 + 4% cess of the income tax.

Earning that is more than Rs. 5,00,000: 5,40,111 – 5,00,000 = Rs.40,111.

12% to 40,111: Rs.4,813

Add 12,500: Rs. 4,813 + 12,500 = Rs. 17,313.

Cess (4% on the income tax): Rs. 692

Total taxes payable: 17,313 + 692 = Rs. 18,005

Net salary of Y: Rs. 5,40,111 – 18,005 = Rs. 5,21,995