Defining Salary Structure - Part 2

Well here i would like to continue the earlier started post regarding the Salary Structure, i am trying to define here what different parts of your salary mean and how it is structured and taxed. I have already written Part 1 of the series and now want to continue with Part 2.

1. PF Contribution - Its something like a Social Security fund that you collect for your old age or maybe some emergency. It has a statuary requirement that a minimum of 12% of the basic is deducted and deposited in the Employee's Provident Fund. The employer also makes a matching contribution to the PF account. Here too a balance needs to be maintained, with the basic salary higher the PF contribution also increases which in turn can cause a reduction in take home salary.

2. Medical Reimbursement - This is the part of the salary where you get paid for the medical expenditure that you incur. It is tax free only upto Rs 15,000 a year. If you dont produce the bills for the amount, the sum gets added into the income for that year.

3. Leave Travel Allowance - The amount paid by the employer to you and your family for leave travel to any place in India or for travelling to any place in India after retirement. This amount is exempt from tax. If the journey is by rail, the amount of air-conditioned first class rail fare by the shortest route or the amount spent, whichever is less, is not taxable. If the travel is by air, then the economy class fare is not taxable.

I will continue this series, but i really hope it is useful. Do give me your comments

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Defining Salary Structure - Part 1

Defining Salary Structure - Last Part

Compare New and Old Income Tax Slabs

Income Tax Calculation Form

This Month Last Year

Some Posts i wrote in this month last year, Not many i think i should start writing more often

1. What do you do with surplus money.
Got a windfall like bonus or a relative giving you money and dont know what to do with the cash then read this.

2. Tax alert impacting individual and employer
Tax calculation and alerts.

3. Highlights of budget that effect you and me
Highlights of the budget of last year that were effecting the ordinary man.

4. Compare new and old income tax slabs
Comparisons between the new and old slab rates.

Defining Salary Structure - Part 1

Would you like to know what different parts of your salary mean? Are you just about to change your job and don't know what different parts of your salary slip mean and how to negotiate better? Well let me try to define some terms for you, this is the first part of the series i will be writing on the issue....

Basic Salary - This is the base income. The basic salary is used to calculate several other constituents of the salary. Basic salary is always taxable and hence ideally should not be kept more than 40% of the Cost to Company (CTC) but then keeping it to low may also cause the reduction in other constituents of the salary. Hence a balanced Basic income should be calculated.

House Rent Allowance (HRA) - House Rent allowance is a very crucial part of the salary structure. It is usually 40 - 50% of the basic salary. Out of the HRA received during any financial year, the least of the following is exempt from the income -
1. The actual HRA Received
2. 50% of the basic salary in metros(Mumbai, Chennai, Delhi or Kolkatta) and 40% in other areas.

3. Actual rent paid minus 10% of the basic salary.

Of course also note that the HRA becomes taxable if you do not pay any rent. Also don't forget if the HRA is lower than 40% of the basic, you will lose out on the chance to reduce your tax.

Special allowance (Other allowance etc) - This is the part which makes up for the remainder part of the salary. It is usually not bigger than the basic salary. This is the part which actually cannot be treated as any other constituent of the salary. This part of the salary is usually completely taxable.

I will continue this as a series, so absorb this information for today and the remaining is coming tomorrow. Going for a commercial break.

Related Posts

Defining Salary Structure - Last Part

Defining Salary Structure - Part 2

What is Recession ?

With the recession talk going on i wanted to see if i could explain it to everyone much better, but then instead of explaining i came across this great presentation on one of the websites. The link to the website is here.

Its a presentation and you learn a lot , even thing you didn't know.

Confusion Confusion

With markets crashing every day all of us have been forced to imagine that this is probably a bottomless market. My total Portfolio has been reduced to half of its value as compared to last diwali

How low can the markets get

Well I Usually don't have much money to buy new stocks but i make it a point to buy Something at every dip and am very much planning to still buy. Now I'm changing my strategy and have planned to invest only in Bluechip stocks for a while But I'm looking at a long term horizon, maybe a period of 2-3 years for returns, expecting a short term return will be very optimistic and some might say even foolish. With the constantly rising inflation and the value of rupee decreasing everyday the question I seem to be pondering with today is that should I really invest the money in the markets or should I trust the good old term deposits with 11percent annual returns.

CONFUSION CONFUSION but atleast I can wish you Happy Diwali

India's First Gold

Hurray!!!!!!!

INDIA has won its first GOLD in the Bejing Olympics. This is India's first ever Olympic gold in any individual event and ninth in total. All thanks to one man ABHINAV BINDRA.





Atleast we have one GOLD now. Lets see if anyone else can do something.

Money Mistakes

How many of mistakes people commit in their life time? And what about money mistakes, Well there are a few even i regret, No i guess i should be more open about it there are a lot of Money mistakes that i regret. But i am learning from my experience now and hope to be even better as i learn along the way. I am listing down some of the common mistakes as below that even i have committed and i really believe everyone should avoid making them as much as possible.

1. Living beyond your means : There is a simple logic we can apply here, if your expenditure is more then your income then in all probability you will be in debt even before you know it. So avoid this at all times. I have done this mistake several times, like just buying a gift for someone close i get carried away and buy something beyond my means and end up in debt.

2. No Budgeting : I guess most of us just forget to Budget, if you don't know where your money is coming from or going to how will you control it. So Budget, it maybe just a simple excel file to do but it needs to be done. You need to know how your money is moving and then only can you plug unnecessary holes, you will have better control over money.

3. To Much Loan : I made a mistake once of taking a personal loan, and then one mistake that i just keep on doing is spending on a credit card. Its a pain now. You certainly cannot avoid taking a loan for the house but then i believe you should only take as much as you think you will be comfortable in repaying. Same goes for any other loan, you don't need to buy a costly car just because it comes with an easy finance option and you can use it to show off.Just be careful while taking a loan.

4. Not Saving Enough : Saving should be treated as any other expense that you incur during the month, if you are making a budget and writing in the expenses column your electricity expenses, your phone bills then also add a column for savings, it should be treated as any other expense and should be paid for every month. Start small and slowly try to increase.

5. Ignoring Disability Insurance : I am not the sole bread winner of my house but i am certainly the primary bread winner and if i were to get disabled due to any reason and which could effect my earning potential, so i got myself a disability insurance, i know it is not enough but i did get something so don't ignore it.

6. Don't Diversify : Have you diversified your portfolio, Diversification can actually spread your risk and help in minimizing it as well,, it can also optimize your returns. You can diversify by investing part of your money in equity through direct purchase, part of it into mutual funds, buy Gold, Buy Real estate and also Debt funds. You could even further diversify your portfolio by investing in different sector funds etc. But Diversification helps since no one can predict accurately how a certain sector of investment is going to perform over long periods.

7. Not taking professional Advice : No Matter how much you have read about financial planning and tax savings etc but you will be surprised by the nitty gritty that a professional can help you with. And its always helpful to take a professional advice whenever you really need it.

8. Not Having goals : Goals give you focus, they give you a benchmark, they help tell you that there is something you have set to achieve and have not done it yet. So go ahead and make goals for yourself. Otherwise you will never know the purpose your investments serve.