What HR professionals should know about money

Though it may be anecdotal, there are some HR people who cannot reconcile their own salary from a CTC to take home!

Why does this happen?

Simply because the CTC is a concept which can include many things, not just the income tax!

For example if in a bank you are entitled to a Rs 20 lakh housing loan at 2 per cent interest, then about 8 per cent of Rs 20 lakh, that is Rs 1.6 lakh is added to your CTC as a concession!

So when the bank tells you that you are at a CTC of Rs 12 lakh, REMEMBER it includes that Rs 1.6 lakh also!

However, largely, the CTC comprises of basic pay, HRA, some fixed allowances, bonus, performance bonus, LTA, medical, paid leave, training costs, telephone, contribution to provident fund, gratuity, etc. So if you hear that your CTC is Rs 10 lakh, expect to get about Rs 50,000 every month, NOT Rs 80,000!

Thus even on a monthly basis your salary has 1. Fixed salary and 2. Variable salary 3. Retirement benefits and 4. Deductions

The fixed salary portion consists of the following:

a. Basic salary: This is the basic salary that you get for doing your job. Normally kept small so that companies can contribute less to various other things like provident fund, etc.

b. House rent allowance: This portion makes sense simply because it is tax efficient to pay you HRA. This amount is expected to help you find a decent accommodation in the place where you reside.

c. Dearness allowance: A taxable amount, this is paid to compensate for the rising cost of living. In many companies it is variable and is linked to the cost of Living Index.

d. Conveyance allowance: Paid for your commute from home to office -- only Rs 800 is tax free under this head.

2. The variable part of your salary is the following:

Meal coupons: The government has said that if a company gives meal coupons for an employee the same will be tax free. So you will get coupons worth say Rs 1200 a month -- this obviously will not be in the CASH component when you get the salary cheque.

Telephone bills: If you have incurred telephone expenses, your telephone bills are reimbursed and it is tax free up to a certain amount.

Medical reimbursement: If you incur medical expenses for your family members, the same is reimbursed to you, normally subject to a limit of Rs 15,000 per annum.

Bonus: Fixed but payable on a quarterly basis or variable, this amount will not be the same amount on a month to month basis. This also is an amount which will keep varying.

3. Retirement benefits

Provident Fund: Almost all companies, and surely all the good companies contribute to a Provident Fund. This contribution is also included in your CTC but does not appear in your cash on hand. About 12 per cent of the basic salary is deducted as YOUR CONTRIBUTION and deposited with the Government or with the company's own Provident Fund Trust. This is available to you as lumpsum (or as pension) when you retire.

Gratuity

If you have worked for 5 years in a company and then you retire you get a 'Gratuity' covered by the Payment of Gratuity Act. This is included in your CTC but does not appear in the cash that you get.

4. Deductions

All the above amounts were a part of your income. However from the above the income tax applicable to you, the profession tax, the deduction for insurance premium, contribution to a mutual fund, or for some loan availed by you are all deducted.

Hence the difference between the CTC (gross pay) and the take home pay (net pay) that you get.

So next time your mother/father asks you 'arre you said your salary is Rs 600,000 per annum but why is your cheque not for Rs 50,000, send them this link.

In fact send it to friends too if they are struggling with the reconciliation... :-)

Illustration: Uttam Ghosh/Rediff.com