with my knowledge
i mentioned few heads for salary break up and not taxable
basic + da (put 60% of salary for pf and all other employer benefits) (recently some amendments is come on this issue)
hra(40% of (basic+da) is exempt for taxation)
convency (800 per month 9600 per annum is not taxable)
a.allow (depending up on employee attendance it will be deduct)
washing( it is exempted for esi)
medical allowance (1250 per month exempt for tax)
13th December 2012 From India, Mumbai
Money that is received under Employer-Employee relationship is called Salary . If one is freelancer or are hired by an organization on contract basis, their income would not be treated as salary income.( In such case your income would be treated as income from business and profession)
The salary consists of following parts
Basic Salary: As the name suggests, this forms the very basis of salary. This is the core of salary, and many other components may be calculated based on this amount. It usually depends on one’s grade within the company’s salary structure.It is a fixed part of one’s compensation structure. And the complete amount becomes a part of your in-hand salary.
Allowances: Apart from basic salary, there are some allowances your CTC will contain. Examples include HRA, conveyance allowance, leave travel allowance. Some of these allowances are tax free up to a certain limit and some of them are dependant on your actual spending. It is the amount received by an individual paid by his/her employer in addition to basic salary to meet some service requirements such as Dearness Allowance(DA), House Rent Allowance (HRA), Leave Travel Assistance(LTA) , Lunch Allowance, Conveyance Allowance , Children’s Education Allowance, City compensatory Allowance etc. Allowance can be fully taxable, partly or non taxable.
Claims or Perquisite: A part of your salary may also be made up of your billed claims. These include components like mobile allowance, medical allowance etc. There is a maximum limit set to these components and are paid when you submit your bills. These are usually tax free. It is any benefit or amenity granted or provided free of cost or at concessional rate such as Rent free unfurnished house, Rent free furnished house, Motor car facility, Reimbursement of Gas, Electricity & Water, Club facility, Domestic Servant Facility, Interest Subsidy on Loan , Reimbursement of medical bills, Reimbursement of Hospital bills, Reimbursement of telephone bills, Benefits derived by employee stock option, and so on.
How are perquisites taxed? Since these are non-cash components, they cannot be taxed directly. So the income tax laws attach a certain value to each of these components and charges a tax on them. The calculation of this value varies from category to category. Nevertheless, the thumb rule across all categories is that only those benefits that you use for personal purpose will be considered as perquisites.
Deductions: A major part of your CTC comprises compulsory deductibles. These include deductions for provident fund, medical insurance etc. They form a part of your compensation structure but you do not get them as part of your in-hand salary. As such, although it increases your CTC, it does not increment your net salary. Compulsory deduction such as Provident Fund, Income tax,Professional Tax (where applicable) . Optional deduction such as recovery for advance or loan if taken, voluntary contribution to P.F etc
Provident Fund Contribution: Provident fund contribution has two sides – the employer’s contribution and employee’s contribution. This is usually 12 per cent of the basic salary. However, this contribution is not paid out . It is directly deposited in Provident Fund(PF) account and paid to employee when he retires or resigns.There is also employee’s contribution to PF. This amount is deducted from his monthly salary and deposited in his PF account. For details on provident fund you can read Provident Fund (PF) and Voluntary Provident Fund (VPF)
Performance linked pay: Linking a part of the salary to productivity and performance has become a trend today. You get the complete amount only on 100% achievement of target, but it forms a part of your CTC, fattening it up.
Different types of salary:
Gross Salary: is the amount of salary paid after adding all benefits and allowances and before deducting any tax.
Net Salary: is what is left of your salary after deductions have been made.
Take Home Salary: Is usually the Net Salary unless there are some personal deductions like loan or bond re-payments.
Cost to Company: Companies use the term “Cost to Company” to calculate the total cost to to employ . i.e. all the costs associated with an employment contract. Major part of CTC comprises of compulsory deductibles. These include deductions for provident fund, medical insurance etc. They form a part of your compensation structure but you not get them as a part of in-hand salary. As such, although it increases your CTC, it does not increment your net salary.
Taxes: Taxes are an unavoidable evil and they eat up a large chunk of your salary. Taxes are obviously never mentioned in your offer letter. So, ensure that you calculate your tax liabilities with the new income in accordance with tax policies to figure out the amount you will receive in your pay cheque.
The Salary structure varies company to company based on their policies. Some of the common Pay heads used are
1) Basic – 35% – 50% of Gross
2) HRA – 40% of Basic for Non metro & 50% of basic for Metro(Delhi, Mumbai, Chennai or Kolkata)
3) Con – Max Rs. 800/ P M which is Max of Rs. 9600 P A
4) Medical Reim – Max Rs. 1250 / PM which can be max of Rs 15000 PA
5) Spl Allow – Balance of Gross will be provided as Spl Allow
Emp Contribution – 12% on Basic (can be subjective to 780, which is 12% of the min basic salary i.e. 6500)
Emp’r Contribution - ( EPS – 8.33% (subject to a ceiling of Rs. 541)
PF – Rest of the amount out of 12% (can be subjective to 780, which is 12% of the min basic salary i.e. 6500)
PF administration charges – 1.1%
EDLI – 0.5% (subject to a ceiling salary of Rs. 6500)
EDLI administration charges 0.01% “
2) ESI – Applicable to employees whose Gross Salary is less than or equal to Rs.10000
Emp Contribution – 1.75% on Grorss
Emp’r Contribution – 4.75% on Gross
PT – It Varies State to state
Gratuity = Basic/26*15*(no. of years- It is payable to the employee who completes 5yrs of service in the organisation. It can be showed as a part of CTC.)
OT Calculation = basic+da/26/8*no.of hrs * 2
If Employees coming under high Salary Then you can again split up the amount in Spl Allow As
1) Food coupons
2) Car Hire
3) Petrol and Maint for Car
FBT is applicable Apart from LTA.
The Variable Pay % also differs company to company Policy. In my previous organization it is 12.5% of the CTC for all the Dept except Sales. For sales it will be 15%.
13th December 2012 From India, Mumbai
The Gross salary includes a component called Dearness Allowance, which again split into Fixed (DA) and Variable DA(VDA). Most organised sector, unionised companies, banks, govt. follow this pattern. The FDA is either a %age on the basic pay or a lump sum, (which partly or fully merged as and when wage revision pact is signed) whereas the VDA is linked to Whole sale price index (WPI) and Consumer Price Index (CPI). These are monitored on the notifications issued by the Labour Dept. GoI on quarterly or half yearly basis. These indices undergo normally upwards in inflationary trend and occasionally downward when deescalation in market prices in select commodities, food grains, oils, veg. & other basket of items and accordingly VDA also revised. However this pattern of DA is not in vogue in modern/MNC Cos.
13th December 2012 From India, Bangalore
#AnonymousDear Seniors !
Firstly thank you very much for all the insights !
Dear Nagaraju 00001
Regarding ( Basic + DA put 60% of salary for pf and all other employer benefits) ( IS IT MANDATORY OR THEIR ANY CIRCULAR )
Regarding Medical allowance on Tax exemption ! if I include Medical Allowance so the Tax exemption will be Rs 15000/- )
The suggestions were of immense value , And I would like to know the States in India where ESIC is applicable ( because find some States that does not comes into ESIC Act )
Dear loginMiracle !
I understand the pattern of DA is not in vogue in modern/MNC, what I want to know is regarding the BENEFITS in naming it Or is thier nay other alternative name which will help in making non-taxable.
Lastly, the (Basic + DA) is also taken in to account while calculating EPF presently in my organisation ( Can I make it calculated only from Basic base even though I DA exist ? ( I meant is their any legal/statutory binding ? )
14th December 2012 From India, Bangalore
The ESIC Scheme is being implemented in various phases area-wise across India. The Scheme has already been implemented in different areas in various States/Union Territories across India except in states like Arunachal Pradesh, Manipur, Mizoram, Nagaland, Tripura and Sikkim.
14th December 2012 From India, Mumbai