Understanding Basic Pay and HRA: How Do They Impact Employee Benefits and Deductions?

Dear All,

Can anyone guide me on the following:

Normally, the industry standard states that the percentage of Basic pay should be 40% - 45% of the gross salary. However, some companies also consider 60% - 70% of the Gross Salary (though I know there is no fixed rule as per law on Basic pay).

1. My question is, if we take a lower percentage of basic, what will be the benefit to the employee?
1. Benefit to employer - less PF contribution to be made.
2. Benefit to Employee - ?

Is HRA linked to basic pay? Does a lower basic lead to more deductions that an employee can get on HRA?

2. What is the HRA percentage? I believe it is between 42% - 45% - am I correct?

For example, if the gross salary is 10000:
Basic (40% of Gross): 4000
HRA (42% of Basic): 1680

Please guide me on the percentages as I am designing the salary breakup for a construction chemicals company.

Regards,
Priyanka

In the lower bracket of the basic salary, an employee is bound to lose due to a reduction in the employer's share of PF and gratuity benefits.

HRA - 50% of basic in metros (Chennai, Mumbai, Delhi, & Kolkata) and 40% in non-metros as per the I.T. Act.

I hope this is clear to you.

Hi Priyanka,

The contents of the salary breakup are as below. You can prepare it according to your own preference. HRA would be 50 or 60% of the basic salary.

- Basic
- HRA = 40 or 50% of basic
- TA = Rs. 800 (Exempted from Taxes)
- Other Allowance
- Mobile Reimbursement / Month
- Gross Per Month = Sum of all the above.
- Gross Per Annum = 12* Gross/Month
- PF Contribution = 12% of Basic/Annum
- ESI Contribution = 4.75% of Gross/Annum
- Medical = The mediclaim facility is provided to employees who are not covered under ESI, as the maximum ceiling for ESI is Rs. 10,000/Month. Any amount exceeding this will be covered under Mediclaim or will depend on company policy.
- Annual Total Cost = Gross Per Annum + PF + ESI
- Annual total cost is also referred to as CTC.

I hope this is clear to you now. Feel free to ask if you have any queries.

Regards,
Amit Seth.