How to Calculate Salary after Deducting Income Tax

Most of us fail to understand the difference between the cost to company (CTC) and the net salary. Cost to company is the aggregate of all forms of compensation and benefits offered by the company, while the net salary is the total amount received after deducting net tax liability on each component. People are often quick to become elated on receiving a higher CTC, failing to realize that the actual increase in the amount they receive in-hand may be marginal. This makes it necessary to understand the various components of CTC, which affect your in-hand salary directly.

The Income Tax Act, 1961 states that every assessee in India, which includes individuals, companies and local authorities, is entitled to pay an annual income tax. However, not all assesses are required to pay income tax. The Indian government has setup a minimum exemption limit, which is revised periodically, typically every financial year. The assessee is only mandated to pay income tax when their income exceeds this limit.