Why Do Employers Break Down Salaries? Understanding the Benefits of Salary Structures

Hi,

Could anyone please explain why salary split-up is done? For example:
- Basic
- House Rent Allowances
- Medical Allowances
- DA

What are the benefits of having a salary structure?

Thanks & Regards,
cgnanij

Hi Cgnanij,

The salary components are split for the following reasons:

1. Tax benefits
2. Ease of administration of C&B.
3. Standardization of the components
4. Statutory requirements

Medical allowance – Rs 15 K – not taxable provided the employees give the medical bills.

PF -12 % is levied on the Basic salary which is a statutory requirement and also provides the employee tax benefit understand section 81 D while computing his taxable income.

HRA – here again one gets the tax benefit by providing the actual rent receipts as per the IT tax act.

The essence of the salary structure is to provide the balance in tax benefits to employees viz higher take home salary as per the IT Act and also meet the statutory requirements.

Regards,

Rajat

Salary split up is done in the following way:
- Basic: 40%
- HRA: 20%
- Medical Allowance: 10%
- Miscellaneous: 1%
- Conveyance: 6%
- Education: 13%

In addition to that, we have PF which is explained nicely above. If you want to know more about PF and ESI, you can email me at [Login to view].

Can you please help me with the salary split of an Administration Head, specifically the conveyance part (traveling/food cost)?