Allowances are a part of employees’ CTC (Cost-to-Company) and are paid in addition to basic salary. Employees can use these allowances to save their taxes.Read more
Basic salary, aka Basic Pay, is the amount paid to an employee before any other payment or deduction like allowance, bonus income tax deduction, etc. It is the core, and the fixed component of CTC and some of the other components are calculated as % of basic salary. For instance, HRA is usually 50% of the basic pay.
Bonus is the extra money received by employees over and above their salary and is fully taxable. Bonus payouts are dependent on the profitability of the company and can be paid to employees based on individual performance or the company's overall performance.
Casual leaves are the leaves granted for urgent or unforeseen situations or other personal situations where the presence of the employee is required for a short duration. These leaves cannot be encashed or carried forward and automatically lapse at the end of the calendar year.
Compensatory off or comp off is the leave or time off that an employee gets for working extra hours. If an employee is working on a weekend or holiday, the company compensates him by an additional leave on any other working day.
An employee who works for an employer under contract is called a contractual employee. A contractual employee is hired for a specific job at a specific rate of pay. Such employees are not added to the salary register and are not considered as full-time employee.
Companies grant conveyance allowances to their employees to cover travel expenses to and from the office. Read this blog post for more.Read more
Dearness Allowance is calculated as a fixed % of basic salary & is completely taxable. This allowance is paid to the central government employees in India.Read more
Deductions under Section 80 of the Income Tax Act can be claimed only if tax-saving investments are made, or eligible expenses are incurred.Read more
Earned leaves (EL) are the leaves earned by the employees after working for a specific amount of time in a company, like a month. Generally, there are 18 earned leaves that are added to an employee's leave balance on a pro-rata basis, i.e. 1.5 days of leave for every 30 days of work.
Earnings are the actual amount paid to an employee in form of salary includes basic pay, house rent allowance, bonus, special allowance, etc.
Employee Self Service (ESS)
Employee self-service is an important feature of payroll software that provides personal login to each employee in the software. Through ESS, employees can view payslips, access Form 16, apply for leaves, upload their personal & professional information, submit tax declarations, etc. from anywhere and at any time.
Employees’ State Insurance (ESI)
The ESI scheme applies to all factories and establishments where employee strength is 10 or more. It is a self-financed social security scheme designed to protect employees covered under the ESI act.Read more
Fixed pay is the pre-defined pay that employees receive on a monthly basis regardless of their individual performance, the performance of a team or performance of the organisation. Fixed pay is guaranteed and is conveyed clearly to employees at the start of their job.
Form 16 is a TDS certificate issued by employers to their employees. It contains details like the total salary paid during the year, tax deducted on such salary, tax declarations made by the employees and their tax computation. Salaried individuals need Form 16 to file their income tax return every year. As per the income tax laws, an employer should issue Form 16 to their employees by the 15th of June every year, unless the date is extended by the government. Form 16 is divided into 2 parts- Part A & Part B.
Form 16 Part A
Form 16 Part A consists of the name, address and PAN of both the employer and employee. Also, this part includes a summary of the total salary paid to an employee during the year and the total tax deducted from their salary and deposited to the government by the employer.
Form 16 Part B
Form 16 Part B contains all the details that an employee needs to file their income tax return. It includes total gross salary, deductions, tax-saving investment details and total tax payable by the employees.
Form 24Q is a TDS return filed by an employer submitting details of the salary paid to the employees and tax deducted on salaries quarterly. Form 24Q consists of 2 annexures. Annexure 1 includes details of employer, employees, tax deducted and deposited in a quarter. Businesses have to submit Annexure 1 for all the four quarters of the financial year. Annexure 2 contains the salary details of the employees. Annexure 2 has to be submitted in the 4th quarter of the financial year along with salary details for the entire year.
Form 26AS is an annual tax statement that contains the details of tax credited against a taxpayer’s PAN. The form included any advance taxes or self-assessment taxes that were paid during the year. Recently via Finance Act 2020, the Income Tax Department amended Form 26AS to include details of specified financial transactions (SFTs), pending and completed assessment proceedings, tax demands and refunds.
A business needs to file TDS return through Form 26Q every quarter to report all TDS from business payments made. Such business payments include contractor payments, payments to professionals, and rental payments.Read more
Full & Final Settlement
Full & Final Settlement is the method of calculating and paying a final amount to an employee on their exit from the company, due to termination or resignation. The employer might also need to recover assets like a laptop, mobile phone, etc. and payments due from the employee. This process includes calculating payments and recoveries, conducting an exit interview, giving relieving and experience letter, and making final payment to the exiting employee.
Gross salary is the total of all the components of the salary offered to an employee. It includes the earnings before deductions such as TDS, PF, etc.Read more
Group Health Insurance
A group health insurance is similar to medical insurance that covers all the members of a particular group. Employers should provide group health insurance to their employees to build a feeling of safety among them.Read more
House Rent Allowance (HRA)
House Rent Allowance (HRA) is the part of CTC provided by an employer to employees for covering their house rental expenses. It is partly taxable and helps employees reduce their tax liability. The amount of exempted HRA is least of the following: 1. Actual HRA received 2. Actual rent paid less 10% of basic salary 3. 50% of basic salary for those living in metro cities (40% for non-metros)
Leave encashment is the amount that an employee receives from their employer for unused leaves. For example, if an employee earns 15 leaves earned from the employer every year, but uses just 7 leaves earned in the year, the employee can get the money from the company for the remaining 8 leaves. Usually, there are no fixed rules for leave encashment but most employers encash leaves annually or at the time of leaving the company. These leaves are encashed on the basis of basic salary and dearness allowance.
"Leave policy is a set of rules that govern the type and number of leaves that employees can avail in a calendar year. It includes the number of paid or unpaid leaves, leave encashment, leave carry forward rules, mode of applying leaves, etc. This policy is curated in accordance with applicable labour laws and regulations."
Leave Travel Allowance (LTA)
Leave Travel Allowance (LTA) is a CTC component provided to employees to help them save tax on the amount spent on travelling when on leave anywhere in the country. It is also known as Leave Travel Concession (LTC) and is 100% tax-free. But, LTA is not a common salary component and an employee can claim this benefit only if LTA is a part of their CTC.
Leave without Pay (LOP)
Leave without Pay (LOP) are the leaves that an employer grants but doesn't pay the employees for those leaves. This is used by the employees when they have exhausted all other forms of leaves and can only be availed if the employer approves those leaves.
Maternity leave is the period when a female employee takes off from work because she is about to have a baby or just had a baby or has adopted a child. Currently, female employees in India are eligible for 26 weeks of paid maternity leave.
Notice Pay is the amount that an employee pays to the employer on resignation or receives from the employer on termination, without serving the agreed notice period.
Notice Period is the time between the resignation date of an employee and their last working day in the company. The notice period is mentioned in the offer letter given to employees at the time of joining. It varies from 1 month to 3 months depending on the company.
Paternity leave is the period when a male employee takes off from work at the birth or adoption of a child. Presently, there is no law governing paternity leave for male employee working in the private sector in India. However, the central government give a paternity leave of 15 days to their male employees.
Payroll software automates all things related to payroll processing and execution. These tasks involve salary automation, compliance payments, leave management, employee database management, etc.Read more
Payslip is a document which an employee receives from an employer usually after getting the salary. It contains details such as name of the employee, date of joining, designation, bank account number, PF account number, monthly earnings, deductions and net payment made to the employee.
Salary arrears is the amount of salary that an employee should have received earlier. Employers may revise an employee's pay from retrospective effect, or a salary revision may occur, but increments are received on a later date. In all these situations, the differential amount is paid in a subsequent period as salary arrears. Salary arrears are computed, paid and mentioned separately in the payslips.
Section 194A of the Income Tax Act states that tax has to be deducted at source on interest (other than interest on securities).Read more
Special allowance is a part of CTC that is used by companies to allocate additional salary after exhausting other salary components like basic pay, HRA, LTA, etc. This allowance is fully taxable to the employees.
A standard deduction of Rs 40,000 was introduced for salaried individuals in Union Budget 2018. This deduction replaced the conveyance allowance of Rs 19,200 and medical reimbursement of Rs 15,000. The limit of the standard deduction was increased to Rs 50,000 in the Interim Budget 2019.
TDS Challan 281 is used to pay TDS by corporates and non-corporate businesses. There are 2 modes for making TDS payments - Online and offline mode.Read more
TDS Returns are the statement that is submitted by the deductors to the income tax department on a quarterly basis. It includes all the transactions subjected to TDS carried out in a particular quarter.Read more
Take Home Salary
Take home salary is the final salary that employees receive in their bank account. This amount is left after all applicable deductions from income tax, health insurance, professional tax, etc. are made from employees' gross salary.
Professional tax is a direct tax that applies to individuals earning by way of employment or practising their profession. Explore more through this article.Read more
Form 12BB is a tax declaration form where an employee needs to mention all tax-saving investments made or to be made in the financial year and submit it to their employers. Employers consider such details for deducting income from employee's salary.Read more
Tax Deducted at Source (TDS)
Tax Deducted at Source (TDS) operates on the basis that each person making a specified type of payment to another individual will deduct tax at source at the rates prescribed by the Income Tax Act.Read more
Universal Account Number (UAN)
Universal Account Number (UAN) is a 12-digit identification number. This number is allocated to all members registered under the EPFO portal. The UAN of a member/employee remains the same throughout life irrespective of the number of jobs they change. Every time a member switches job, EPFO allots a new member identification number (ID), which is linked to the UAN.
Variable pay is a pay based on employee's performance and the company's performance. Employees must earn it in order to receive it. Also called as pay for performance. It is not pre-defined and usually paid out quarterly, half-yearly, annually or completion of a specific goal. Bonus, sales commission, incentives, share of profit are some of the examples of variable pay.