1 Salary breakups depends upon Metro/Non metro, hence let me know the employee work location to find out proper ctc by keeping take home salary.
2. To reduce income tax, employee can make investment / can give declaration till december end.(i.e., u/s 80c, Housing loan etc...)
3. conveyance of Rs.9600 directly get exempted / FY.
4. PF amount at max Rs.100000 / FY will directly be exempted. u/s 80c.
As a fresher, you will find fixing gross salary (or CTC) a bit complicated and perhaps a little difficult. You may need to take the help of your boss or superior.
Simplistically, to explain, there are essentially three parts to it:
(1) the structuring of the salary (what all components does your Company offer as parts of salary, i.e. a basic salary, house rent allowance, conveyance allowance/reimbursement, leave travel allowance/assistance, other allowances, provident fund (if applicable), ESI (if applicable), Gratuity, Bonus (if applicable), other reimbursements, etc.); (2) industry-specific norms (i.e. what comp. & ben. structure do most Companies follow in your industry (note in rare cases, they may be driven by some landmark Court ruling or even wage-board outcomes); and, (3) driven by minimization of employee pay taxability under the Income Tax Act, 1961.
Conceptually, you will need to understand the significance of tax applicability to certain components of salary, your salary components & significance of each component, salary structure (that may be different at different levels/grades in your Company and reasons thereto) which may include certain essential salary components, some not-so-essential components for balancing pay and tax, and, some cafeteria items (that may come as reimbursements, fringe benefits or perquisites.) which may be tax-exempt or variably taxable.
Normally, professional Companies structure the salary of employees at different grades/levels differently to make them tax friendly (as far as is possible), to conform to industry specific norms, to maximize take-home pay (net take-home); to make it attractive to attract & retain talent; to encourage annuity savings; to add deferment pay for strategic/statutory reasons; to include (variable)/non-variable performance-pay components, some co-ownership components (stock options (fixed/rolling vesting)/sweat equity/profit-linked-commissions/bonuses) and with several other strategic intent that could vary from Company to Company. There are more reasons too that I have not explained for the sake of maintaining brevity.
It is often the best tactic to discourage new joinees in demanding a fixed 'net' (post-tax) pay. Sometimes, it becomes too difficult for an HR Professional to structure pay to derive a certain take-home pay for each new recruit. A lot depends on his personal tax-saving investments that he has or may undertake during the course of a fiscal year. Also, your Company's compensation structure should be so structured that all employees should get maximum tax savings/rebate without an employee reasoning it out.
The tax incidence of a new employee also depends on which income tax bracket does he fall under. Higher paid employees will pay higher tax and fall into the maximum bracket. Generally speaking, most of all allowances are taxed to varying degrees. Rs 75,000/- net of pay would be equivalent to Rs 9 Lacs per annum net. His gross will be much higher and he is surely expected to fall in the maximum (30%) income tax slab.
The best answer to such demands/requests from employees is mostly that 'we have a standard salary structure and taxability for all employees at your level/grade is uniform. The salary structure cannot be changed to suit each employee. All employees are treated equitably. Rest will depend on how well you can or have invested in tax-saving financial instruments' each financial year. The percentage on each pay component in our pay structure is also fixed by the management and so cannot be changed".
As per disclosure by you in your brief mail, your salary structure seems to comprise of only Basic, HRA, Conveyance Allowance and PF (if applicable), typical to a small organization.
Basic pay is fully taxable, HRA is taxable depending on least of the three conditions provisioned in the Income Tax Act & is dependant on how much of a 'reasonably acceptable' rent receipt can the employee furnish to your Company (befitting his level, salary and size/location of his accommodation), Conveyance Allowance is taxable above Rs 800 per month and PF attract a standard rebate under sec 80C of the Income Tax Act.
Your pay structure can certainly be made more tax-friendly to help employees, especially in a higher salary bracket. Consult your Finance & Accounts to gather more knowledge on pay component taxability. This may be an early warning call to restructure your salary structure in a better way. Various Compensation & Benefits components can be introduced, depending on acceptability by your management. HR needs to convince the management on reasons for changing the salary structure. C&B is a specialized subject in HR and requires fairly sound knowledge given that it impacts the Company as well as career/compensation of employees.
Hope this helps you and accords some conceptual clarity.
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