Also, if you are not increasing basic just to avoid PF contribution, then employer is not required to do any PF contribution above Rs. 15,000 /-.
You may even add medical allowance of INR 15000 per annum, for which bills has to be produced by employee at the end of the financial year to make it tax free. and rest of the amount may be added to their special allowance component.
By not increasing Basic you are in a way actually denying the employee of certain perks and income tax exemptions.
1. HRA exemption is strongly determined by Basic. Say you keep Basic at 15k and actual rent paid by the employee is anything which is greater than that which is quite realistic in Mumbai, for this case let's take 20k the HRA exemption will work as per below.
Actual HRA received(Assuming you have given 50% of Basic) = 7500*12 = 90,000/-
Actual rent paid less 10% of basic = (Rs. 20,000 X 12) – Rs. 18,000 = Rs. 2,22,000/-.
50% of basic salary since he lives in a metro = Rs. 90,000/-
Looking at the calculation above, would it not be fair to increase basic. Even if you decided to pay a higher HRA it would eventually come back to 50%.
2. From a PF stand point, The employer can decide to cap contribution at 15k, so it really does not affect the companies costs. This is a little unfair when looked at from an employees point of view as with higher PF contributions come better retiral. This needs to be looked at on an industry to industry basis. In industries where attrition is high like retail, media, cap it at 15%, where attrition is low like mfg, etc keep it as per actual.
3. With the out burst of the start up culture in India, recruiters have become quite cruel (Obviously, to sustain their own jobs and trying to keep costs low - I call this "Penny Wise and Pound Foolish"), with the way of structuring salaries for new joiners, so someone who joins at a low basic and is kept at that through his tenure, and when they move to a new company they fall into the same cycle i.e. assuming they don't join MNC's where structures are controlled by systems. These guys actually take so much time to get their structures right, it is not even funny. For eg. In one of the organisation i worked for a employee with 1.5 lac Gross was being paid 20k as basic. It does not even make sense sometimes.
To conclude, I would like to say, it is the most elementary job of HR to build a culture of employee satisfaction and encourage candour and things like getting the salary structure right is one of the most basic things which form part of this. It the job of the HR personnel to not only inform the management of wrong decisions but in some cases take a strong stand on implementing only what is correct.
Increase in Basic and consequent increase in indirect benefits is a different issue. Basic issue it 'Salary Structure'. When we start an industry or business, do we not plan for human resource and its compensation? How to attract and retain manpower is the topmost consideration. Playing with basic is a mathematical exercise.
Friends, take into account what do employees want? You may play with the basic, but then take a risk of losing some employees. After all it is the CTC i.e. the total cost to company. Maintain uniformity in grades and allowances. Give the rise where there will be least grievances. Compensation is a source for dissatisfaction. It is not easy to give whimsical rise in salary and allowances. A detailed study is necessary to satisfy employees and at the same time take care of the employer.