Employer Compliance Requirements in India

When structuring salaries in India, employers must account for several statutory components:

Mandatory Contributions

• Provident Fund (PF): 12% of basic salary (up to ₹15,000 basic) for organizations with 20+ employees.
• Employee State Insurance (ESI): 3.25% by employer + 0.75% by employee for gross ≤ ₹21,000.
• Gratuity: 4.81% of basic salary payable after 5 years continuous service.

Salary Structure Best Practices

• Maintain basic salary between 40-50% of CTC for optimal PF and gratuity benefits
• Include HRA component (40-50% of basic) for tax efficiency
• Consider medical allowance (up to ₹15,000 annually tax-free)
• Include LTA (Leave Travel Allowance) for additional tax savings

Note: This calculator provides estimates based on standard deductions. Actual costs may vary based on company policies and state-specific regulations.

Income Tax Slabs and Rules FY 2025-26

India offers two tax regimes with different deduction options. Choose wisely based on your investments and expenses:

New Tax Regime (Default)

• Lower tax rates but fewer deductions
• Standard deduction of ₹50,000 available
• Tax slabs: 0% up to ₹3L, 5% (3-6L), 10% (6-9L), 15% (9-12L), 20% (12-15L), 30% (above 15L)
• Rebate up to ₹25,000 for taxable income ≤ ₹7L

Old Tax Regime

• Higher tax rates but more deductions
• Standard deduction ₹50,000
• Section 80C deductions up to ₹1.5L (PF, LIC, PPF, ELSS, etc.)
• NPS additional ₹50k deduction (80CCD(1B))
• Health insurance up to ₹25k (₹50k for seniors) under 80D
• Tax slabs: 0% up to ₹2.5L, 5% (2.5-5L), 20% (5-10L), 30% (above 10L)

Which Regime is Better?

The new regime typically benefits those with few investments/deductions, while the old regime helps those with substantial tax-saving investments. Use this calculator to compare both options.

Note: 4% health & education cess applies on total tax in both regimes. Senior citizens (60+) and super seniors (80+) have higher exemption limits.

EPF and Gratuity Rules in India

Your employment benefits include valuable long-term savings through EPF and gratuity. Here's how they work:

Employee Provident Fund (EPF)

• Contribution: 12% of basic salary from employee + 12% from employer (3.67% to EPF, 8.33% to EPS)
• Current interest rate: 8.25% for FY 2025-26 (compounded monthly)
• Tax benefits: Contributions deductible under 80C, interest tax-free, withdrawals tax-free after 5 years
• Withdrawal rules: Allowed after 2 months of unemployment (taxable if before 5 years)

Gratuity Benefits

• Eligibility: Payable after 5 years of continuous service
• Calculation: (Last drawn basic × 15/26) × Years of service
• Tax treatment: Tax-free up to ₹20 lakh
• Coverage: Mandatory for organizations with 10+ employees under Payment of Gratuity Act

Maximizing Your Benefits

• Maintain higher basic salary to increase PF and gratuity amounts
• Continue PF account when changing jobs (transfer instead of withdrawing)
• Consider voluntary PF contributions (VPF) for higher tax-free returns

HRA Exemption Rules and Tax Benefits

House Rent Allowance (HRA) provides significant tax savings for salaried individuals in India. Here's everything you need to know:

HRA Exemption Calculation

Your HRA exemption is the lowest of these three amounts:

1. Actual HRA received from employer
2. 50% of basic salary for metro cities (40% for non-metro)
3. Rent paid minus 10% of basic salary

Documentation Requirements

• Rent receipts showing landlord name, address and amount
• Rent agreement (not mandatory but recommended)
• Landlord PAN required if annual rent exceeds ₹1 lakh
• Bank proof of rent payments for high amounts

Special Cases

• Living with parents: Can claim HRA if paying rent to them (need proper documentation)
• No HRA component: Can claim deduction under Section 80GG (up to ₹60,000 annually)
• Self-employed: Not eligible for HRA exemption

Metro cities: Delhi, Mumbai, Kolkata, Chennai. All other locations are considered non-metro for HRA purposes.

Pension Options for Indian Employees

Employees in India can benefit from multiple pension schemes. Understand your options for retirement planning:

Employee Pension Scheme (EPS)

• Eligibility: Minimum 10 years service (EPF members)
• Calculation: (Pensionable salary × Pensionable service)/70
• Pensionable salary: Average of last 60 months basic, capped at ₹15,000
• Minimum pension: ₹1,000 per month
• Commutation: Up to 40% can be taken as lump sum at retirement

National Pension System (NPS)

• Contributions: Minimum ₹6,000 annually (Tier I account)
• Tax benefits: Additional ₹50,000 deduction under 80CCD(1B)
• Withdrawal rules: 60% tax-free at 60, 40% must be used to buy annuity
• Returns: Market-linked, typically 8-10% historically

Company Pension Plans

• Some organizations offer additional pension benefits
• May include defined benefit or defined contribution plans
• Check with your HR department for specific benefits

Note: The calculator provides EPS pension estimates. For comprehensive retirement planning, consider combining EPS with NPS and other investments.

Understanding Loan EMIs in India

Equated Monthly Installments (EMIs) are fixed payments made by borrowers to lenders at specified dates. Here's how they work:

How EMIs Are Calculated

The EMI formula considers three factors:

• Principal amount: Total loan amount borrowed
• Interest rate: Annual rate charged by lender
• Loan tenure: Duration to repay (in months/years)

The standard formula used is:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Where P=Principal, R=Monthly interest rate, N=Tenure in months

Current Home Loan Rates in India (2025)

• Public sector banks: 8.4% - 9.5% p.a.
• Private banks: 8.9% - 10.5% p.a.
• HDFC, SBI, LIC Housing offer special rates for women borrowers

Types of Interest Rates

• Fixed rate: Interest remains constant throughout tenure
• Floating rate: Changes with market conditions (linked to MCLR/RLLR)
• Hybrid: Fixed for initial years, then floating

Tip: Use this calculator to compare loan offers from different banks and find the most affordable option.

Loan Prepayment Benefits and Rules in India

Making prepayments on your loan can save significant interest costs. Here's what Indian borrowers should know:

Prepayment Rules in India

• Home loans: Most banks allow unlimited prepayment of floating rate loans
• Fixed rate loans: May have prepayment penalties (1-3% of outstanding)
• Personal loans: Prepayment charges vary by lender (typically 2-5%)
• Tax benefits: Prepayment doesn't affect Section 24 and 80C deductions

Prepayment Strategies

• Reduce EMI: Maintain original tenure but lower monthly payments
• Reduce tenure: Keep same EMI but pay off loan faster
• Partial prepayment: Make lump sum payments when possible
• Increase EMI: As salary grows, increase EMI to reduce tenure

Which Option Saves More?

Reducing tenure typically saves more interest than reducing EMI, as the principal reduces faster. However, choose based on your cash flow needs.

Current Prepayment Charges (2025)

• SBI: Nil for floating rate home loans
• HDFC: 1-2% for fixed rate loans
• ICICI: Nil for floating rate, 2% for fixed rate

Tip: Use bonuses, tax refunds or investments to make prepayments and become debt-free faster.