Income tax effect

Times of India carried a article about DRDO recommending and forwarding a pay proposal for increase in salary 3 to 4 times of existing salary along with other benefits to its scientists/engineers to prevent the high attrition . Further" Times Now " telecast news about the Govt considering revision of retirement age from 60 to 62. I hope this news will be welcomed by Scientists / Engineers. We should see whether the pay commission pays attention to the recommendation of DRDO/CSIR etc.

If you see a person leaving such organization ,the main point of argument from his side will be the offer received from the IT companies is two times or three times of salary than what is he getting in these R&D organization.

On plain look it may look like so, whether the net salary received is same is to be seen in the light of income tax.

We will take a typical employee aged 30 + yrs having some 9-10 years drawing a basic salary in the range of 11500 -12000 (by 9-10 year may be due for promotion and could have been promoted to the grade of 12000) decides to leave these organization and joins a private sector with an CTC Of Rs.10.00 lakhs. On the outlook it look a huge sum and he is excited about the numbers in the Offer letter and decides to leave.

But the truth is otherwise.

The first catch will be it is not the actual take home salary and it is the cost spent by the company on you and it includes everything. These aspect has been looked in to earlier articles and another element is income tax which also has the effect on your take home at the end of year. On plain look the employee will be delighted that his new income will be 150 % more than his present salary. What will be the post tax return?

We will work out the salary and income tax on the person when he is still in govt service. His total salary will be around Rs .4.00 lakh per annum.

description	amount	MONTH	yearly
basic	12000
DP	6000
DA @ 41	7380
HRA @ 30	5400
TA	800
CCA	300
SPL. INCREMENT	650
TOTAL	32530	12	390360
YEARLY PROF ALLOWANCE			10000
TOTAL			400360

Now we will work out the income tax with the assumption that he is availing the benefit of section 80 C by contributing to GPF or ELSS or principal towards housing loan etc to the maximum of Rs 1.00 lakh. Further he also avails the interest payment upto Rs. 1.50 lakhs.

TOTAL INCOME	390360
EXEMPTION (TA)	9600
TAXABLE INCOME	380760
DEDUCTION
80 C	100000
24( INTEREST ON HOUSE)	150000
NET TAXABLE INCOME	130760
TAX @ 10 % + surcharge	3138

So his net income post tax will be 400360 – 3138 =397222. The income tax calculation is worked out in a broad based manner and for comparsion sake and many details like deduction available like payment of professional tax, exemption on tuition fees etc were no taken in to account.