How is the income tax and PF calculated in India? For example: person X is getting 6 lakhs per annum. How is the PF calculated for him?

Currently, the following three schemes are in operation under the EPF Act of 1952, and it is into these trusts that your monthly contributions go. These are as follows: 1. Employees Provident Fund Scheme (1952) 2. Employees Deposit Linked Insurance Scheme (1976) 3. Employees Pension Scheme (1995) In a majority of the cases, EPF, EPS and EDLIS are calculated on the basis of your Basic + Dearness Allowance (DA). Others consider your Basic + Dearness Allowance + Cash value of food allowance and retaining allowances if any as well. A Sample Calculation - Of How Your EPF is Split Up and Saved: Every Month a portion of your Salary is deducted towards EPF - This will be referred to as "Employee Contribution". Your employer too contributes a certain amount every month towards EPF - This will be referred to as "Employer Contribution". Employee Contribution: 12% of your Basic Salary + DA (Comes out of your Salary) Employer Contribution: Another 12% of your Basic Salary + DA (Comes out of your Employers Pocket) In most corporate companies these days, this Employer Contribution too is considered as part of your total CTC (Cost To Company) and hence can’t really be considered as coming out of your Employers Pocket The Employee Contribution goes entirely towards the EPF Scheme. The Employer Contribution gets split up as follows: 1. 3.67% into EPF 2. 8.33% into EPS 3. 1.1% EPF Administration Charges 4. 0.5% into EDLIS (If Applicable) 5. 0.01% EDLIS Administration Charges If you remembered to add up the numbers the total comes up to 13.61% which is higher than the 12% Employer contribution that I just mentioned a few lines ago. That is because: * The 1.1% EPF Admin Charges is borne by your Employer and is not part of your CTC * The 0.5% contribution to EDLIS or 0.01% EDLIS Admin Charges too are borne by your Employer (If Applicable) and is not part of your CTC. So, if you just sum up the 3.67% that goes into your EPF and the 8.33% that goes into your EPS - The Total comes up to 12% doesn’t it? In cases where the Basic Salary of an employee is more than Rs. 6,500/- most employers limit the EPS contribution to Rs. 541/- and contribute the remaining towards EPF. For ex: If your Basic Salary is Rs. 10,000/- 12% of your Basic Salary works out to Rs. 1,200/- 3.67% of your Basic Salary works out to Rs. 367/- 8.33% of your Basic Salary comes to Rs. 833/- which is higher than the limit of Rs. 541/- So, your Employer will contribute Rs. 541/- towards EPS and contribute Rs. 659/- towards EPF (Rs. 367/- + Rs. 292/-) In Essence, the employer will contribute 12% of your Basic just as mentioned above with the simple difference being the fact that the EPS component is constrained by an upper limit and the remaining usually goes towards your EPF. More about EPF here: http://anandvijayakumar.blogspot.sg/2013/03/employee-provident-fund-demystified.html http://anandvijayakumar.blogspot.sg/2013/04/all-your-questions-about-employee.html To Learn about Income Tax calculation in India read this article: It is very difficult to explain everything in such a small answering box. http://anandvijayakumar.blogspot.sg/2013/12/your-complete-guide-to-indian-income.html

Hi, Rs. 6,00,00 lakhs per annum looks like it is your Cost to Company (CTC). CTC is an amount that is created by companies to calculate what they are spending on every employee in a year. Your CTC includes components that are not part of your salary as well. Thus, your monthly salary will not be Rs. 50,000 but a little lesser than that in reality due to the deductions that play a role in your payslip. A general payslip looks like this: Image credit: http://joblagao.com/ As you can see each component that adds to your income comes under the heading Earnings. Those components that reduce your income come under Deductions. Provident Fund and Income Tax come under deductions. To calculate the amount of income tax you are liable to pay, you first need to calculate calculate all the avenues that allow for tax exemptions and deductions. For example, allowances such as House Rent Allowance, Conveyance Allowance, Food Allowance, Medical reimbursement allow for tax exemptions and this amount is reduced from your taxable income. You can have a look at Earnings part of your payslip here- http://blog.simplrnow.com/2015/10/06/all-about-the-payslip/. Similarly, Provident Fund (PF) is scheme where you can save money. If your Basic amount is less than Rs. 15,000 then you have to contribute towards PF at the rate of 12% of the basic component every month. If your basic amount is higher you can choose to contribute towards PF. This amount that you save in your PF shall get deducted from your income but you shall receive it upon retirement. You also earn some interest (8.7%) on a yearly basis. Furthermore, the amount you save in PF is deducted from your taxable income. To get a better understanding of PF and it's types you can read this article I wrote for http://blog.simplrnow.com/,http://blog.simplrnow.com/2015/11/25/types-of-provident-fund-pf-vpf-and-ppf/. Another type of deduction is Professional Taxwhich every salaried employee in certain states have to pay. The maximum amount you pay in a year is Rs. 2,500. If there are some loans that you are paying that are eligible for tax deduction that shall also be reduced from your taxable income. After all tax saving instruments have been applied, the amount remaining is called taxable income. Depending on which slab the taxable income falls, income tax rates are applied and calculated. You can see the current income tax slab rates here- http://taxguru.in/income-tax/income-tax-slab-financial-year-201516.html