### HOW TO CALCULATE PAYROLL ?

Payroll calculations are usually computed on 4 main components – Basic pay, Allowances, Deductions, and IT Declarations.

### Gross Pay

Gross Pay is the sum of Basic pay + Allowances.

### Net Pay

Net Pay is the difference between Gross Pay – (Deductions + Total TDS). Total TDS is the sum of TDS, Surcharge, Health & Education Cess.

### Basic Pay

Basic Pay is 50% of Gross salary (Gross * 0.5)

### HRA

The amount received as the HRA from the employer. Actual rent paid less 10% of the basic salary and 50% of the basic salary if staying in a metro city and 40% in a non-metro city.

### Provident Fund

PF deduction(Provident Fund) is  calculated on 12% of Basic + PF applicable allowances or 15,000, which ever is lower

### Employee State Insurance

ESI is calculated on  0.75% of – Gross Pay (Basic and LOP dependent allowances) or 21,000, whichever is lower

### Rules for calculating payroll taxes

FY (2019 – 2020)

• Income Tax formula for FY (2019 – 2020) = (Basic + Allowances – Deductions) * 12 – (IT Declarations + Standard deduction)
• Deductions are the sum of PF, ESI, and PT etc.
• TDS is calculated on (Basic + Allowances – Deductions) * 12 – (IT Declarations + Standard deduction)
• Standard deduction (50,000)

FY (2020 – 2021)

• Income Tax formula for FY (2020 – 2021) = (Basic + Allowances – Deductions (ESI)) * 12 – (IT Declarations)
• Only ESI is considered as a deduction.
• Exemptions for  FY (2020 -2021)
1. Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and 80JJA)
2. Standard Deduction (50,000)
3. Interest on housing loan (Section 24)
4. House Rent Allowance
5. Profession Tax
6. Children Education Allowance

Note: The taxpayers has the option to either continue with the FY (2019-2020) tax rates, and exemptions or opt for the FY (2020 – 2021) with lower tax rates by forgoing tax exemptions and deductions.