Calculation Methodology & Architecture

1. Core CTC Decomposition Identity

Cost to Company (CTC) is a corporate financial expenditure metric, not cash salary. To model offer letters truthfully without double-counting, PayDecode defines CTC using the following strict accounting identity:

From this identity, Annual Fixed Cash Salary is computed as:

Monthly bank credit (take-home salary) is then calculated by subtracting only employee-side deductions:

2. Employee Provident Fund (EPF) Rules

Effective 17 September 2026, the Ministry of Labour and Employment updated the statutory EPFO wage ceiling from ₹15,000 to ₹25,000 per month (via Gazette Notification & PIB Release).

• Statutory Ceiling Scenario: PF wage base is min(MonthlyBasic, ₹25,000). Employee contribution is 12% = ₹3,000/month. Employer contribution is ₹3,000/month (allocated between EPS at 8.33% and EPF at 3.67%).
• Full Basic Scenario: Many technology enterprises deduct 12% on the entire basic salary without capping at ₹25,000. PayDecode supports this configuration explicitly.
• Non-Double-Counting Guard: Employer PF is an employer expense already removed during fixed cash derivation; it is never deducted a second time from employee take-home pay.

3. Income Tax & Marginal Relief (Income-tax Act, 2025)

For Tax Year 2026–27, tax is calculated under the Income-tax Act, 2025:

• Section 19: Standard deduction of ₹75,000 under the New Regime and ₹50,000 under the Old Regime.
• Section 202: Slab rates of 0% (up to 4L), 5% (4L–8L), 10% (8L–12L), 15% (12L–16L), 20% (16L–20L), 25% (20L–24L), and 30% (above 24L).
• Section 156 (Rebate & Marginal Relief): Resident individuals with taxable income up to ₹12,00,000 receive a rebate up to ₹60,000 (resulting in zero tax). For taxable income just above ₹12 Lakh, marginal relief ensures that tax after rebate does not exceed the excess income over ₹12 Lakh.
• Health & Education Cess: 4% applied to net tax after rebate and surcharge.

4. Reverse Salary Engine (Binary Search)

Because the forward function f(CTC) → MonthlyTakeHome is strictly monotonically non-decreasing, the reverse calculator employs a deterministic binary search with a tolerance of ±₹100, guaranteed to converge in under 25 iterations without false-approximation shortcuts.

5. Engineering Scope & Exclusions

PayDecode is designed for ordinary Indian salaried employment compensation. The current engine deliberately excludes:

• Capital gains taxation (stocks, mutual funds, real estate).
• ESOP perquisite tax at vesting/exercise (governed by Fair Market Value on exercise date).
• Dual-employment income or mid-year employer transitions without consolidated Form 12B.
• Section 89 tax relief for salary arrears.