Akruti Agarwal - Page 14 - WCafe Financial Services Pvt Ltd

Why should you draft a will?

There are many individuals who have made appropriate investments for their family’s well-being, insured their life with a term-insurance rather than an endowment plan etc. However, they are wary of writing a will or feel that they should write a will after they cross a certain age.

I discussed with my parents and was trying to reason with them on writing a will. I even offered them to keep it anonymous and get a third party lawyer involved. In spite of the same, they were not very convinced on writing a will. The root cause of this problem is our ancestors and our previous generations who have been very conservative and conscious about their family wealth. They never wrote wills as they were scared that their children will not take care of them in their old age. The same mentality may be passed on to some individuals today. However, we must have faith that we are better than that and our in better financial position than our ancestors.

Making Nominations & Its limitations

This is the simplest way of ensuring that one’s assets i.e. saving accounts, fixed deposits, provident fund etc. are transferred to your dependents at no additional cost. However, it is very important to review your nominations from time to time as your relationships keep changing. You may want to edit your nominations when you get married, when you have children and when your parents/others (who are nominated are no longer alive) etc.

There are a few limitations/conditions to note in case of nominations

If a nominee is a minor, you need to assign a suitable guardian.
Any change in nomination necessities a witness
A nomination is held good only in the absence of a valid contrary claim by another person.
If the nomination is challenged by will that disposes of assets in a contrary manner, the nomination will be rendered ineffective.
Also, if the person dies intestate (without a will), the laws of succession will override the nomination.

Start working on your will

Limitations of the nomination process increase the need for a will. If you want a conflict-free distribution of assets amongst your dependents than you must write a will.

People still believe that will is for the affluent. A will should be written by all those who have certain moveable and immoveable assets and also, want a peaceful distribution of the same among their children and dependents.

Estate Planning

Another method of distributing your property amongst the heir could be estate planning. Financial planners and wealth managers help you in valuing your estate and completing other formalities. It involves amassing and disposing of the assets to ensure that the end goals of the owner are met after his/her death.

Advice is given on the basis of valuation of the assets for the purpose of the division amongst multiple heirs. The applicable laws of the land (and religion of the individual) with respect to succession are also taken into account.

It also includes tax planning to ensure minimum outgo of tax at the time of transfer to the beneficiary.

Writing a will is also a part of the estate planning process. You may also choose to form a trust in case the beneficiaries are minor children or charitable organizations.

The difference between a will and a trust is that while a will can be implemented only after following the requisite legal procedures whereas the trust can transfer the property to the beneficiary immediately after the testator’s death.

Money tips - 08/21/2018

Nomination process in case of life insurance

You are buying life insurance to secure the financial life of your dependents. To avoid your financial dependents of any troubles you must ensure that you have bought a cover of the adequate amount, disclosed all the correct details and informed your dependents about you having a term Insurance.

Have you nominated your dependents in your life insurance or you thought that you shall do the same eventually?

What is Nomination?

Nomination is a right given to the life insurance policyholder to appoint a person or persons to receive the benefit under the policy in case it becomes a death claim. Assume if a person who is insured dies, the nominee is entitled to receive the policy proceeds subject to certain conditions.

Meaning of a nominee as per the earlier laws

Earlier, the nominee in your insurance policy would not in actual receive and benefit from the insurance money but was to act as a trustee of the claim amount he or she would receive from the death claim.

Acting as a trustee means that the nominee had to distribute the claim amount as per the legal heir rules or the WILL of the deceased person.

Hence, earlier nomination meant not an ownership of claim amount. This lead to many legal battles between nominees and legal heirs to claim the death claim amount of the insured person.

What is the meaning of Beneficial Nominee in your Life Insurance?

IRDA introduced the concept of Beneficial Nominee.

Now as per the new rules, suppose you nominate your parents (sibling is not included), spouse or children, then they will be considered as the beneficial nominee and the death claim amount will be payable to ONLY them.

Other legal heirs as per the will or otherwise cannot claim the death claim amount. Accordingly, Life Insurance Company will pay the death claim benefit ONLY to the nominees.

Hence, while buying a life insurance, you must have a clarity of mind as to whom do you want the death claim amount to be payable in your absence. The nominee also has the right on the claim money if the policyholder dies after the policy period is over but before receiving the maturity benefited.

Things to keep in mind while assigning your nominee

You as the policyholder can declare the nominee at the time of policy application, or at any time later during the term of the policy.
You can nominate anyone as a nominee – your spouse, your children, relatives, your friends, unrelated people, anyone. You need to provide details such as full name (as per the nominee’s documents), gender, address, age and the relationship between the nominee and you (if there is one).
Suppose you nominated your friend or someone who has no insurable interest in your life, then such non-relative will not be treated as the beneficial nominee. In such a situation, your actual beneficial nominees or legal heirs can prove that he or she is not a beneficial nominee and can get the claim amount from the nominated person.
A valid WILL still can negate the rights of beneficial owner and money can be disbursed according to the WILL of the insured.
The nominees’ details are generally printed or endorsed on the policy certificate. If such information is not available on policy document, then the nomination is not valid.
Change or cancel nomination for INR 100 for each change.

Types of nomination permitted or advised

You can also nominate multiple people in a particular ratio, e.g. 40% to person A and 60% to person B.
Even successive/alternate nomination in life insurance is possible. This is nothing but the nomination order. e.g. nominate the money to person A. If he is not alive at the time of claim, it can go to person B. If B is not alive as well, it can go to person C. All the names of A, B and C need to be declared upfront at the time of successive nomination in life insurance. This is the best way to nominate and it is highly recommended.

What if One Makes No Nominations in the Policy

In case your policy fails to have a nominee, you need not worry, as the sum assured will be discharged according to the following rules -
The insurance company might dispatch the claim amount to Class I legal heir which includes- insured’s spouse, son, daughter, and mother.
In case of a Will, the process is followed according to the Indian Succession Act, 1925 where the claim amount is distributed according to what has been stated in the Will. A succession certificate from the court will be required, to have a clarification on whom to handover the claim amount.
Whenever there is more than one legal heir, insurer intents are to safeguard their interest in scenarios of dispute on settlement of the claim. For this, the insurer shall ask for an indemnity bond, joint discharge statement, and waiver of legal evidence.

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Insurance / Money tips - 08/20/2018

PO MIS

Post Office Monthly Income Scheme (PO MIS) is a scheme run by the Indian Post Office. It is also best suited to meet the monthly requirements of retired individuals. Eligibility: Any individual can open a PO MIS account, singly or jointly. Multiple accounts can also be held subject to the overall investment limit. Non-residents and HUFs are not eligible to open an account under this scheme. Investment Limits: Minimum amount required to be invested in this account is INR 1,500 and the maximum amount that can be invested is INR 4,50,000 in case of a single account and INR 9,00,000 in case of a joint account. Rate of Return: The PO MIS account earns an interest of 7.3% per annum payable to the investor at the end of each month. Interest not withdrawn does not earn any interest. A bonus of 5% on principal amount is admissible on maturity in respect of MIS accounts opened on or after 8.12.07 and up to 30.11.2011. No unutilized is payable on the deposits made on or after 1.12.2011. Time Period: This account has a maturity period of 5 years. Tax Treatment: Amount deposited in this account do not enjoy any tax deduction. The interest earned is also taxable. However, no TDS is deducted on the payout. Others:The interest earned on the account can be transferred to another savings account every month. WealthCafe Note: Positives: PO MIS is the most preferred Investment Avenue for those looking for regular assured monthly income. Even SCSS pays out intererst only quarterly. Negatives: The interest earned on the deposit is taxable. The maximum amount a person can deposit is only Rs. 4,50,000 (Rs. 9,00,000 for a joint account). Conclusion: PO MIS should rank very high on your list when planning for investing your funds post your retirement. Just like under SCSS, having the monthly interest transferred to a savings accounts enables you to earn interest on the unutilised amount in the savings account.

Alternative Assets - 08/20/2018

Health Insurance for a New Born Baby

The insurance policies that cover the child from their day of birth are rare. Once the baby completes 90 days, they become eligible for health insurance. Adding the child to the health policy of their family is also an available option like a family floater health insurance policy.

Age: Children cannot be insured from day one since that involves a lot of risks. But to cover them, one can add them to their parent’s policy which can cover early vaccinations and postnatal care. After completion of 90 days, the baby is eligible for insurance.

Options: The insurance company must be made aware of the child’s birth, within the seven days of birth. Then the insurance provider lets you know the applicable plans to cover the baby. The plan advised offers insurance cover to the baby after 90 days, and more options can be added while renewing the policy.

Required Documentation: While renewing the policy, a set of documents like a birth certificate and discharge card are to be included for submission.

Premium: After the submission of the required documents, the premium will be calculated and informed that when paid the health insurance policy will be covering the child.

It is very important to add your child to your health insurance. The costs related to the newborn baby can be huge and can shift your entire financial planning. A small increase in your premium can secure you from unforeseen financial expenses of your newborn and lets you enjoy the time with them carefree.

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

Insurance - 08/19/2018

Tax benefits of NPS

National Pension Scheme (NPS) became a famous investment module amongst the high tax bracket income earning individuals because of the additional tax benefit that is included in these investments. NPS, which is a voluntary, defined contribution retirement savings scheme, enables the subscriber to accumulate savings during his or her working life. NPS offers two types of accounts - Tier I and Tier II. The Tier 1 account is non-withdrawable till the person reaches the age of 60. Partial withdrawal before that is allowed in specific cases. (Refer our Article on NPS withdrawal) On the other hand, the Tier II National Pension Scheme account is just like a savings account and subscribers are free to withdraw the money as and whenever they require. We have written a detailed article on the features of NPS. Income Tax Benefits You Need To Know On Tier 1 Accounts

Section	Deduction allowed	Amount	Who can claim
80CCD(1)	Employee contribution upto 10% of the basic + DA	Upto INR 1.5 lakhs including other 80C deductions	Employees. Self-employed can claim 20% of their annual income.
80CCD(2)	Employers contribution upto 10% of basic + DA	Employers Contribution (No Cap)	Only salaried individuals and not self-employed.
80CCD (1B)	Additional benefit of INR 50,000 over and above the benefit in 80CCD (1)	Upto INR 50,000	Employee, self-employed or general citizen.

Income tax on partial NPS withdrawal

when you withdraw before 60 years.

NPS allows partial withdrawals for specific purposes before the subscriber reaches the age of 60. 25 per cent of the contribution made by a subscriber has been exempted from income tax. Anything above that will be taxable as a part of their taxable salary.

When subscriber turns 60

According to the current tax laws, up to 40 per cent of the corpus withdrawn in lump sum is exempt from tax when the subscriber attains the age of 60.The balance 60% is to be invested into buying an annuity product. The amount invested in annuity is also fully exempt from tax. However, income received in the form of annuity is taxable.

Salary / Tax - 08/15/2018

Leave Travel Allowance - LTA

Leave Travel Allowance (LTA) is my favorite allowance. As per LTA, the government gives us tax benefits for our holiday. It is the best tax saving scheme ever – as I just don’t save tax, I take a vacation too!! As per this allowance an employee gets to cover his travel expenses when he is on leave from work by his employer. Sometimes it is also known as Leave Travel Concession (LTC). LTA is exempt from tax u/s 10(5) of Income Tax Act, 1961. It is the travel concession or assistance received by you (an employee) from your employer for yourself and your family towards your travel expenses within India while you are on leave from work or post-retirement or termination of service. Family includes:

Spouse of individual
Children of individual
Parents of an individual (mainly or wholly dependent on the individual)
Brothers and sisters of an individual (mainly or wholly dependent on the individual)

Lets plan and travel from the tax perspective this time

There are certain rules that are to be followed:

LTA amount is generally fixed by the employer and is a part of your compensation structure (refer our article Understand your salary structure)
Thus, the relevant expenses incurred up to the specific limit are tax-free.
To claim the benefit, you must have a copy of your travel tickets and bills.
Expenses incurred only on traveling are permitted. Expenses made on food, shopping, etc. are not tax-free.
One drawback is that you cannot claim tax-free LTA each year. An exemption is allowed for only two travels within a block of four years.
LTA covers only domestic travel, i.e. only within India. International travel is not covered under this.

What are LTA block years? An employee cannot decide his/her own block of four years depending on when they start the job. The blocks are fixed in the income-tax act. Exemptions can be claimed twice during each block period. The current block consists of the following 4 years 2018, 2019, 2020 and 2021. List of Expenses Exempt under LTA In case of travel by air The economy airfare of national carrier by the shortest route or the actual amount spent on travel whichever is less is exempt from tax. In case of travel by rail The A.C. first class rail fare by shortest route or actual amount spent on travel whichever is less is exempt from tax. If the origin and destination spots of the journey are connected by rail but the journey is performed by other modes of transport and not air or rail

The A.C. first class rail fare by shortest route or actual amount spent on travel, whichever is less is exempt from tax.

If the origin & destination points are not connected by rail or air (partly/fully) but connected by other recognized Public transport system

The first class or deluxe class fare of such transport by shortest route or actual amount spent on travel, whichever is less is exempt from tax.

If the place of origin & destination are not connected by rail or air (partly/fully) and also not connected by other recognized Public transport system

The AC first class rail fare by shortest route (assuming that the journey was performed by rail) or the amount actually spent on travel, whichever is less is exempt from tax.

What is Carryover Concession? If you did not use LTA provided by your employer either once or twice (the permitted limit) in a 4 years block period, then you can still claim LTA exemption by using LTA in the year immediately succeeding the 4 years block period. It is known as carryover concession. For Example, Mr. Shah claimed only one exemption during the 7th block of years which lasted from 2014-17. He still has one exemption remaining. So when can he claim it? He can claim this concession in the next year, i.e. 2018 which is a part of the next block. So, in the next block of 2018 – 2021, he can claim 3 exemptions in total but he needs to claim carryover concession of the previous block (2014-2017) in 2018 only and not later than that. Example 2 – Mr Iyer had a LTA of INR. 30,000 per annum, in his compensation structure.

He did not travel anywhere in 2018 and thus, no LTA was claimed by him. He transferred the same to 2019.
He traveled in 2019 incurred an expense of INR 40,000
He submitted the proofs and will get an LTA of INR 40,000 from his employer. All of this is tax free INR 30,000 from 2018 and INR 10,000 from 2019.
In 2020, he again traveled and thus, claimed LTA of INR 35,000 which was given to him tax free from his employer.
In 2021, balance INR 45,000 was paid to Mr Iyer (INR 120,000 – INR 40,000 – INR 35,000).
However, Mr. Iyer will get only INR 36,000 in hand as INR 9,500 was deducted towards taxes by his employer indicating that the same was not tax-free.
Mr. Iyer has claimed the LTA twice in 4 years i.e. 2019 and 2020 and thus the balance payment received in 2021 was not tax-free.
You will have to check with your employer to check on this carry forward of LTA balance to next year. Some employers prefer clearing the balance in the same year itself.

Thus, if you want to save taxes on your salary, take a vacation with your family in India and maintain all your travel tickets to claim the LTA benefits. LTA is the only allowance which lets you travel and save taxes. In spite of LTA being such an easy allowance, many people do not claim LTA (i.e. they do not submit appropriate forms and proofs to their HR teams within valid timelines) and end up paying taxes on their LTA allowance.

Salary - 08/14/2018

Insurance Frauds and Spurious Calls

A friend was duped into buying an HDFC life insurance policy when she had just started to work with her first employer. Being new to tax planning, she was sold the policy stating that payment of INR 50,000 per annum for the next 7 years will get her INR 1,000,000 at the end of 15 years.

The friend got a call on her landline asking for her insurance needs. Her mother gave her mobile number to the insurance agent and asked her to coordinate with him. She was so occupied at work that she bought whatever insurance he sold to her convincing her that the investment would double in 7 years and the insurance will also give her tax benefits.

We have in detail discussed in our Article – Why you must buy a term Insurance and Insurance v/s mutual funds as to how the money grows and multiplies and why you should not fall prey to the terms – ‘double your investments_________.’

I went with my friend to surrender the policy at the HDFC Insurance office and was surprised to see that around 10 people were waiting to surrender their insurance policy on a Friday afternoon.
Why are the policies missold
The Insurance agents get a commission ranging from 40% to 70% on the premium amount paid towards insurance making insurance the most marketed financial product in the world.
This commission is just not for the first-year premium. In some cases, they get it for the first 3 years 40% and the balance 3 years 20%. The high commission makes insurance a very lucrative product to sell.

New ways of misselling

The case of misselling has worsened since people have started getting spurious calls in the name of regulatory organizations and government or quasi-government authorities. Recently some gangs have been exposed to a new scam in the Insurance Sector “Fake calls from IRDA”.
This scam is to trap the existing policyholders who are not satisfied with their existing plan and are not getting desired returns, bonuses, or claims.

• They get calls from people pretending to be representatives of IRDA.
• They claim that this call is on behalf of IRDA to address the complaints and grievances of the policyholder.
• The person receiving such a phone call gets convinced and starts sharing the problems faced with the existing insurance policy.
• On understanding the issue of the policyholders, these tele-callers convince that they will get the refund of the existing policy and the policyholder can withdraw the actual amount of the premium paid to the company.
• These callers, the fake IRDA representatives, keep complete knowledge about the functioning of insurance companies, regulatory authority, and norms and then they make the other person convinced confidently and smartly with their conversation.

I have also received calls from IRDA asking if I had any issues or if I should own a good insurance product. They are regulatory bodies and hence, it is very easy for people to believe them.
When I told them to send me an email, they started abusing me over the phone and spoke to me in a very irresponsible way. I immediately knew that they are imposters and cut the call.

How should one be cautious of such spurious calls?

1. Do not entertain any insurance provider over a phone call; always ask them to drop an email from their official email ID, providing you with the offer and other details.
2. It is very important to educate your parents about the same. It is very easy to obtain the landline numbers and sell the same to housewives with little or no knowledge about these calls. They end up giving their debit card/credit card pins.
3. Report all the telephone numbers when you receive a call from one, claiming to be a fake LIC agent or the IRDA regulators.
4. IRDA has issued a public notice to state that the regulator never makes any calls. "The general public is hereby informed that the Insurance Regulatory and Development Authority is a regulatory body which does not involve directly or through any representative in the sale of any kind of insurance or financial products," a public notice posted on its website said. It further adds that if you make any kind of transaction with such a fake agent, you would be doing so at your own risk.
5. Likewise, if you receive calls from an agent claiming to be from LIC or any other insurance company for that matter, it's best to disconnect the call.
6. If an agent asks you to pay cash, it should be an immediate red flag. According to the LIC's advertisement, when you buy an LIC policy, you should register the same on their portal for easier management of the policy. Even for other private insurance companies, always register on their website and refer to the same for any problems and updates.
7. When an agent visits you, you should check his/her license, issued by the insurance company. But, then, we think it isn't too difficult for fraudsters to make fake licenses. So, maybe paying a visit to the insurer’s branch office or buying a policy online via the company's website or online insurance portal, would work better.
8. Register your policies online on the websites and other private insurers to avoid any communication with an agent. You can coordinate with the insurance providers over email.

These are basic solutions and common sense ways to deal with the problem of spurious calls. However, as many of us are too occupied with work and other commitments, we do not spend too much time sorting our investments becoming prey to such scams.

It is your hard-earned money that is being invested in various financial products and hence, you must be cautious about how you manage the same.

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

Insurance - 08/14/2018

New EPF Rules - 2018

he EPF account consists of contributions from the employer and employee. However, the money in an EPF account cannot be withdrawn at whim.

Here are 10 important rules about EPF withdrawal:

Money from the EPF account cannot be withdrawn during employment, unlike a bank account. EPF is a long-term retirement savings scheme. The money can be withdrawn only after retirement.
Partial withdrawal from EPF accounts is permitted in the case of an emergency such as medical emergency, house purchase or construction, and higher education. Partial withdrawal is subject to limits depending on the reason. The account holder can request online for partial withdrawal.
Although the EPF corpus can be withdrawn only after retirement, early retirement is not considered until the person reaches 55 years of age. EPFO allows withdrawal of 90% of the EPF corpus 1 year before retirement, provided the person is not less than 54 years old.
The EPF corpus can be withdrawn if a person faces unemployment before retirement due to lock-down or retrenchment.
The EPF subscriber has to declare unemployment in order to withdraw the EPF amount.
As per the new rule, EPFO allows withdrawal of 75% of the EPF corpus after 1 month of unemployment. The remaining 25% can be transferred to a new EPF account after gaining new employment.
As per the old rule, 100% EPF withdrawal is allowed after 2 months of unemployment.
EPF corpus withdrawal is exempted from tax but under certain conditions. Tax exemption on EPF corpus is permitted only if an employee contributes to the EPF account for 5 continuous years. The EPF amount is taxable if there is a break in the contribution to the account for 5 continuous years. In that case, the entire EPF amount will be considered as taxable income for that financial year.
Tax is deducted at source on premature withdrawal of the EPF corpus. However, if the entire amount is less than Rs.50,000, then TDS is not applicable. Keep in mind, if an employee provides PAN with the application, the applicable TDS rate is 10%. Otherwise, it is 30% plus tax. Form 15H/15G is a declaration form, which states that a person's total income is not taxable and thus, TDS is avoidable.
An employee does not have to await approval from the employer for EPF withdrawal anymore. It can be done directly from the EPFO, provided the employee's UAN and Aadhaar are linked, and the employer has approved it. EPF withdrawal status can be checked online.

Salary / Tax - 08/13/2018

Is the monthly pension paid under EPS just?

The government has fixed the monthly pension benefit at 1,000 INR from the financial year 2014-15. Those who started job after 1 Sep 2014 and earning more than 15,000 INR in basic and DA will not be contributing to the Pension Scheme. Before Sep 1, 2014, it was Based on a maximum employment period of 35 years, and a maximum contribution of Rs 6500, the maximum amount of pension as per the Pension formula would be = 6500 * 35)/70 = Rs 3,250 per month or Rs. 39,000(3250 * 12) per year. Our article How to calculate your pension under EPS will explain the same in detail

Maximum Pension one can get is 7,500 INR per month.
Minimum Pension one can get is 1,000 INR per month.

Is the Monthly Pension paid under EPS just?

The amount of pension is meager. If one would have invested 541 INR in a Debt Mutual Fund at the rate of 8% for 35 years one would get 12,49,263 as maturity amount. If this maturity amount is put in buying the Pension plan and put the above amount 12,49,263 INR in the premium calculator of LIC with an option as Annuity payable for life, one would get a monthly pension of 10,150 INR which is much more than 3250 INR.

Salary / Tax - 08/12/2018

Understand your salary structure

“The number of INR 50,000 per month that the company has offered to pay you is it the in-hand number or your CTC?” I could not help but ask my friend, Leesha this question (and ruin her excitement) when all she wanted me was to be happy for her new job at a leading fashion house in Mumbai. She obviously did not understand the term CTC. She told me that she was offered INR 50,000 per month and reckoned it was sufficient to live a decent life in Mumbai. What she didn't understand was that the amount of INR 50,000 was the CTC amount and the actual amount she would receive in hand each month would be lower. I asked her ‘Have you heard about the IIT students getting a package of INR 24,00,000 and more?' After she answered in affirmative, I further questioned her ‘How much do you think, that person would be getting each month in his/her bank account?’ My friend answered with a bit of jealousy that the amount would be INR 200,000. I told her that it is not so, the student would get anything between INR 100,000 to INR 135,000 as his/her in-hand salary. The amount of INR 24,00,000 is their CTC and various components get deducted before receiving the final salary. I explained to her that the industry generally discusses salary in terms of CTC and not in-hand (which are not the same thing). By looking at her face, I realized either she has assumed the worst or is absolutely clueless about anything that I just said. Then I started to explain to her exactly in detail what I meant. In-hand salary (also known as take-home salary) is the amount that you actually receive in your bank account at the end of each month whereas CTC (also known as Cost to company) is the total salary amount before any taxes, insurance amount, bonus and other various deductions. This amount is generally printed on the offer letter issued to an employee. Salary is always offered on per annum basis. It is generally never negotiated or discussed on a per month basis. My friend would be expecting an amount of INR 600,000 (50,000*12) annually in-hand but the amount is actually INR 600,000 CTC. In short, in-hand salary = CTC minus Deductions CTC is always a higher number than the in-hand salary number. The general deductions which are subtracted from the CTC amount to arrive at the final ' in-hand' or 'take-home' salary of an individual can include:

Telephone, car, and other allowance – Many employers reimburse their employees' telephone & internet bills, children's education and uniform allowance up to a specific limit. This amount is also included in the CTC as a part of your salary. However, this payment is not made at the end of each month but is made only when the bills (up to the limits specified in the offer letter) are submitted to the company. Thus, one can collect bills over 6 months and claim their reimbursements once in 6 months or not claim anything until the end of the year. Where an employee does not submit any bills throughout the year, the employer shall pay the amount due to an employee after deducting relevant taxes on the same at the end of the year. Where bills are submitted to the extent of the limits specified, no taxes are deducted by the employer while making these payments.
Leave Travel Allowance (LTA) - LTA is similar to the allowances mentioned above. The same is paid to you only after you submit the relevant bills and documents to your employer. There is a detailed article, written on How to save tax through LTA

Gratuity - Gratuity is payable to an employee on the termination of his /her employment after they have rendered continuous service for not less than 5 years. It is important to know that gratuity is payable only on resignation (after 5 years of service), retirement or death. Thus, even where the same is included in your CTC, it is not paid to you until you serve 5 years. If you leave the company before completion of 5 years of service, this amount is not paid to you even though it formed a part of your CTC.
NPS (Employer Contribution) - An employer may contribute a % of your basic salary towards NPS - National Pension Scheme. Any money from NPS is received only post-retirement. There are certain conditions for withdrawing money before retirement. We have discussed in detail about NPS in our articles What is NPS and How can you withdraw money from NPS. The NPS amount is a part of your CTC but not paid each month to you and instead deposited with PFRDA each month to be paid to you on your retirement.
Employees' Provident fund (EPF)– An employer contributes 12% of the basic salary payable to the employee towards EPF. Where an employee opts for EPF, the employee contributes 12% of his basic salary in addition to the Employers Contribution. A total of 24% of your Basic salary is deducted from your CTC resulting in a lowered in-hand amount. There are many things to know about EPF apart from the impact on the in-hand amount. We have discussed the same in detail in our series of Article under EPF
Taxes –All employers are required to deduct taxes on the salary that they pay to the employees. If you are under the belief that you are hardly earning anything and should not be paying any taxes, you are mistaken. If an employee is earning more than INR 2.5 lakhs per annum (this amount is the CTC amount), the employer shall deduct appropriate taxes on the same. Apart from EPF, the major impact on the in-hand salary is the taxes which are deducted by the employer. Refer to our Articles Ways to reduce taxes without any investments and Investments which help you reduce taxes.
Health Insurance or medical-claim – Many employers provide their employees with health insurance cover and the premium amount of the same is included in the salary CTC amount. However, that amount is not received in-hand each month by the employee but is directly paid by the employer to the respective health insurance providers.
Bonus - The Bonus component in one's Salary is completely dependent on the performance and targets achieved. The maximum bonus that an employee is eligible to receive is included in the CTC. However, it is received only once a year and depends on your performance which is assessed by your employer. Where your offer letter states a bonus of INE 300,000 you may receive anything less than INR 300,000 based on the targets achieved by you and after deducting the applicable taxes on the bonus.
House Rent Allowance (HRA)- The amount paid as rent when the employee is settled in a new city. This is received in hand each month until you are living in accommodation provided by the employer.

In conclusion, the deductions from the CTC can broadly consist of five parts:

Contributions: Amount that is contributed by the employer on behalf of the employee towards EPF, Insurance, a gratuity fund or a pension fund. It is a part of your salary but is received by you only after you have completed a few years of service and on the fulfillment of certain conditions.
Taxes: Income-tax - the same is deducted when your income is more than INR 250,000 subject to some investments and profession tax - this is deducted for all professional employees.
Employer Expenses: House Rent and Health Insurance - Expenses incurred by the employer for your benefits but not paid in-hand to you.
Reimbursements and allowances: Amount that you receive as reimbursements/allowances (without taxes) after the relevant expenses proofs are submitted. Where you do not submit the proofs, the same is paid to you at the end of the year after deducting taxes from the same.
Variable salary: Amount that you receive as performances based incentives, profit-based bonus or sales based targets (Bonus).

By the end of this discussion, Leesha was not very happy as now she realised that she will receive only INR 40,800 in-hand each month and not the INR 50,000 CTC she was offered by her employer. For a fresher, this can be an anxious phase as you do not want to be considered unaware by your new employer and yet know how much exactly you are going to earn. We, through are articles are educating you about your income as understanding and knowing your income is the first step towards financial wellbeing.

Salary - 08/08/2018

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