Understanding Salary Components in India: How to Maximize Your Take-Home Pay and Save on Taxes

- Basic Salary
- Commissions/Incentives
- Bonus
- Dearness Allowance
- Child Education Allowance (better given as reimbursement to save tax)
- Child Hostel Allowance (better given as reimbursement to save tax)
- City Compensatory Allowance
- Conveyance Allowance
- House Rent Allowance
- Leave Travel Allowance (better given as reimbursement up to a maximum of 15,000/- to save tax)
- Lunch Allowance
- Medical reimbursement to a maximum of 15,000/- (otherwise it will be taxed)
- Newspaper Allowance (better given as reimbursement to save tax)
- Special Allowance
- Gift Voucher
- Club Membership (save tax)

Hi, you can also add:

1. Uniform Maintenance
2. Professional Enrichment Allowance
3. Entertainment (Reimbursement), etc.
4. Vehicle Allowance
5. Phone Allowance

Most of the components above can be considered for higher-grade salaries.

Regards,
Shravan

I just wanted to know the limits of Uniform Maintenance and Professional Enrichment Allowance.

Regards,
Amit

Professional Enrichment:

Eligible employees may request reimbursement for expenses associated with professional development such as seminars, books, and professionally related dues, etc., for the employee’s professional or technical growth. The maximum reimbursement amount is in accordance with the employee’s memorandum of understanding.

Uniform Maintenance

Uniform maintenance can be reimbursed in accordance with the employee memorandum of understanding.

Dear Colleagues,

Let me add a few words to the issues raised on Compensation & Benefits.

One basic thing is the status of the employee(s) concerned, the department to which they belong, and probably the level of hazard-related tasks they might be involved in. More importantly, the business environment and industry play a crucial role.

Additional Allowances

However, some allowances not mentioned would include, but are not limited to, the following:

- Fuel Allowance (Petrol/Diesel)
- Driver's Allowance
- Mobile/Cell Phone Allowance
- Power Generator Allowance
- Internet Access Allowance
- Academic/Professional Membership Allowance
- Accident-Free Allowance (for Drivers)
- Night Shift Allowance
- Furniture Allowance
- Mortgage Allowance
- Offshore/Rig Allowance
- Gas Allowance (domestic)
- Dressing Allowance - Marketing Team/TV Broadcasters

Certainly, the list can go on and on, but as I have earlier said, the staff's status in the company would determine what he/she gets as compensation, and the industry they belong to would be the launching pad for such.

Thanks

Regards, Afolabi Ajayi

Hi, I have just joined the forum and was going through the discussions on salary structures in India. It is indeed very enlightening, but I have a query. Regarding all these allowances, what kind of limits are applicable to make them tax-free? For example, medical is ₹15,000 per annum. What about the rest?

Pooja

Hi Pooja,

Conveyance allowance is tax-free up to Rs 800/- per month (Rs 9600/- per annum). Any amount above this limit becomes taxable.

Regards,
Ashit

Hi all,

It's very informative, but I would like to know what is the maximum limit for getting tax exemptions. In the recent budget, there is something about imposing tax on fringe benefits. That tax would mostly be borne by the employer. What is the percentage which would be imposed? I would be pleased if any one of you could share the information.

Thanks and regards,
Sridhar

Hi,

As I know, the conveyance allowance is 800/- and medical allowance is 1250/- per month at a minimum that can be paid. However, I still need to ask what the set rules are for the salary breakup in my company. For instance, an employee is receiving a 50000/- salary per month, or if someone is getting 20000/-, 15000/-, 10000/-, 8500/-, 7000/-. We break down the salary into the following components:

- Basic (how do we determine the basic pay?)
- HRA
- Medical Allowances
- Conveyance Allowances
- Special Allowances (is it taxable?)

Thank you,
Taruna

Sridhar,

Offhand, what the FBT says is to tax all of the financial transactions that happen due to an employee (be it business-related and hence taxed by the employer or part of the salary component - the tax component being passed on to the employee). Currently, with the kind of uproar this new tax component is creating, I doubt that the tax is going to become legal (though some form of it might stay). Probably the best bet to look at the financial impact of your salary (including all of the perks, perquisites, etc.) would be done through a visit to a Chartered Accountant.

PS - I am currently looking at restructuring my own salary, and you bet, next week on Monday, I am meeting my company's CA for his approval/suggestions. Cheers!!!

Ashish

Hi All,

This is Radhika Pallav, newly joined the group. I just wanted to know what the fixed ratios are for the components of CTC salary in India.

Please advise.

Regards,
Radhika

Please could you tell me whether in India we have a system of branding employees? I also came across the term "BUFFET BENEFIT PACKAGES," what are these?

Reema:

Are you referring to "Cafeteria Style" benefits where a party can pick and choose the specific benefit package which he or she wants, dependent upon specific needs and ability to pay?

Alan

Dear All,

If anyone has the salary structure of IT companies, please forward it to me at my email id l.prashanth@itti.co.in. If you have a sample copy of how to work out the structure, please send it to me. I would be thankful for your help.

Regards,
Prashanth

Dear,

Components of the Monthly Salary can be divided into subheads such as:

1. Salary that includes Basic, HRA, Special Allowance,
2. Perquisites that include Allowances and Reimbursements,
3. Other Perquisites
- Monthly Provided (Coupons) & Annual Provided (LTA, Medical)
4. Statutory Contributions (P.F, ESI)

The same can be subject to change as per the existing policy of the company.

Regards,

Basic
Dearness allowance
Overtime
Bonus
City compensatory allowance (CCA)
Conveyance allowance
Medical
Flexible benefit plan
Leave encashment
Leave travel allowance
Gratuity
Children education or hostel allowance
Employee stock option

I have reviewed the list you provided, and it appears to be a list of various types of benefits and allowances that may be offered to employees. It's important to ensure that these benefits are clearly communicated to employees to maintain transparency and satisfaction in the workplace. If you need further assistance in understanding or implementing these benefits, feel free to reach out for support.

The other major component (opted by many MNC's) of salary in India are:

a) medical reimbursements
b) Food Coupons

Dear Madam,

I am also facing the same problem. Can you please let me know if you have any advice on the salary front?

Regards,
Fabian

Dear all,

I had the same problem. Please, can anyone help me out? Please let me know what are the components to fix a salary for an IT company, taking into consideration the latest tax rules.

I would be thankful if anyone will help me out.

Swathi

Dear Afolabi Ajayi,

I have received the full details about the salary components. This information will assist me in structuring the package for employees. Thank you very much.

Vasanthi
Chennai
+91 98408 63066

Hi,

General components of salary in India vary from organization to organization, but the most common are:

1. In Government Circle:
- Basic Pay
- Dearness Allowance
- House Rent Allowance
- Conveyance/Transport Allowance

2. In Semi Govt. / PSU:
- Basic Pay
- Dearness Allowance
- House Rent Allowance
- Conveyance/Transport Allowance
- City Compensatory Allowance

3. In Industrial Organization:
- Basic Pay
- Dearness/Variable Dearness Allowance
- House Rent Allowance
- Conveyance/Transport Allowance

4. In Other Establishments:
- Basic Pay
- House Rent Allowance
- Conveyance/Transport Allowance

All other components are simply named as "just to save tax" components, which depend on the organization's thought process in naming an allowance. You are free to give a name to any component as long as it does not conflict with statutory requirements such as EPF, ESI, Bonus, Gratuity, Income Tax, and Industrial Dispute Act.

Regards,
Anil Anand

Hi all,

The general components of salary were very good and informative, but I have a query regarding the calculation of the cost to the company. Can anyone tell me how to go about it?

Regards,
Tanu

Dear,

You can add the following:

- Telephone Reimbursement (bi-monthly)
- Internet reimbursement
- Turnout Allowance (Security and others)
- Split Shift Allowance (For drivers and others)
- Credit Card Annual Fee reimbursement
- Gardner Allowance (For senior executives)
- Domestic Help allowance (Senior Executives)
- Leave Travel Concession or Leave Travel Assistance
- Charge Allowance (Somebody is discharging the HOD responsibility for more than two months) or Officiating Allowance
- Professional Fee Reimbursement (The fee paid to the professional bodies by the employees/executives can be reimbursed)
- Disturbance Allowance (In case of transfer and not shifted family to the present place of posting)

Regards,

A. Ratna Sekhar
Manager-IR&W
919448205687

Thank you very much for your reply, madam. By the way, I am Smitha. I would like to know more about HR. Actually, I have a passion to get into HR. But I do not understand where to start and how to start. Could anyone help me please? I am doing my MBA in HR but working as an Administration and Finance Executive.

Dear friends,

I would like to know what percentage of total earnings must be the basic pay and allowances, etc. I guess there must be some measure for everything. I hear people telling that basic pay must be 25% and some say 40%, so I am not sure about that. I would appreciate it if someone could provide me with the exact details.

Thanks a ton!!
~ Harry

Dear Harry,

Generally, you can consider 35% to 40% as the basic salary. Let me explain it this way.

Let the gross be Rs 2,00,000 per annum, and the following components can be derived (Annual figures):
- Basic: Rs 80,000 (40% of Gross)
- HRA: Rs 32,000 (40% of Basic)
- CCA: Rs 16,000 (20% of Basic)
- PF: Rs 9,600 (12% of Basic)
- Medical Reimbursement: Rs 15,000 (maximum limit)

Calculate the total of these components as X. Then, find the difference between Rs 2,00,000 and X. You can adjust that amount for other allowances and reimbursements.

Regards,
R. Karanik

Hi, I am Chinna, a student of HR. I would like to know what the percentages of individual components in the salary are. Please help me.

With regards,
Chinna

Dear All,

Kindly mention the proportionate percentage for arriving at the basic salary from CTC. Our company adopts 35% of the basic salary to arrive at HRA. What percentage of the gross is basic? I need to arrive at the breakup for Rs. 540,000 CTC. Please mention the breakup for the same. Your suggestions will be highly appreciated.

Thanks,
Nitu

Hi,

In today's business environment, business performance plays a vital role in the very existence of the word "Employee." Based on this performance, the salary components should be defined. In our establishment, this component plays a vital role. So, we pay 60% of the pay package as variable and 40% as fixed. The fixed component is distributed in Basic, DA, Special Allowance, and House Rent Allowance. The variable components are Performance Linked Pay (linked with production volume and monthly profitability) and Productivity Linked Pay (linked with production volume only).

I believe this is the best possible combination for a manufacturing industry.

Regards,
srp

I remember if the employee submits bills for the amount claimed against conveyance allowance (reimbursement), then the same can be claimed for tax deduction. Also, for lunch allowance, we can give food vouchers/food coupons to allow for tax deduction for that amount.

Regards,
Samba.

Dear all,

We know that the contribution of PF is applicable to leave encashment and leave availed by an employee during the tenure of his service. But what about the unavailed leave wages/salary paid to a separated employee on his final settlement? Please help me understand the logic and the rules under the EPF & MP Act, if any.

Regards,
srp

Hi,

Could you please help with what is the maximum amount in these components? I hope all is well on your end.

Regards,
P.S. Phani.

Hi!

The percentage is fixed. However, there is no limit for the right employee in the right position. As I spoke, performance is the only yardstick - I mean both individual and corporate. For an exceptional performer, the sky is the limit.

Hope you understood my points.

Thanks

Ashish,

Would be thankful if you are able to share the concrete information after your meeting with the CA as I am also in the process of restructuring the salary structure in my organization.

Thanks,
Punita

What are the components of salary in a nonprofit organization in India? What is the salary administration structure for a nonprofit organization?

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Hi,

I'm doing my final year project. I have plans of doing a project in compensation. Can anyone suggest some good topics in this area? The duration is 4 months. Thank you :)

Regards,
Samyuktha

Hi all,

Let me try to give you an idea about components of salary:

1) Basic - 35 to 40% of gross (taxable)

2) HRA - 40% of basic (in case of metro cities 50% of basic) (exempted from tax if the employee provides rent receipt at 10% of gross annual income or as defined in salary and as per receipts produced)

3) Conveyance = 800 per month (800 * 12 = 9600 p.a.) (exempted from tax)

4) Medical Reimbursement = 1250 per month (1250 * 12 = 15000 p.a.) (exempted from taxable income)

5) LTA = 1250 per month (1250 * 12 = 15000 p.a.) (can be exempted from tax twice in a block of 4 years)

6) Meal allowance (cannot be more than 65 Rs per day, so 16250 p.a. if 250 days working).

You can put the remaining amount in Special Allowance (the whole of it is taxable) or account for it in other allowances such as uniform allowance (up to 10,000 p.a.) (not taxable), Internet access allowance, phone allowance, professional enrichment allowance, entertainment allowance, City compensatory allowance (20% of basic) (taxable), etc.

Then in case there is PF deduction:

1) Employer's contribution to PF = 12% of basic + DA (8.33% in FPF (Family Pension Fund) + 3.67% in EPF)

2) Employee's contribution to PF = 12% of basic + DA (all in EPF)

If the gross salary of the employee is less than 10000, then he comes under ESI. In case ESI is applicable in the organization:

1) Employee's contribution to ESI = 1.75% of salary

2) Employer's contribution to ESI = 4.75% of salary

Tax slabs:

0 - 1,00,000 = 0%

1,00,001 - 1,50,000 = 10%

150,001 - 2,50,000 = 20%

2,50,001 onwards = 30%

Neha :)

Hi all!

What are taxable benefits and non-taxable? Please break up the components.

TAXABLE - NON-TAXABLE

Yours,
Kumar

What are the guidelines for calculating BASIC, DA, HRA, Conveyance Allowances in salary fixation for a new employee?

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To calculate the salary components for a new employee, certain guidelines need to be followed. The components typically include Basic Salary, Dearness Allowance (DA), House Rent Allowance (HRA), and Conveyance Allowance. Each of these components plays a crucial role in determining the total salary package for an employee.

1. Basic Salary: This is the core of the salary structure and is usually a fixed amount. It does not include any allowances or deductions.

2. Dearness Allowance (DA): DA is provided to employees as a cost of living adjustment to mitigate the impact of inflation. It is calculated as a percentage of the basic salary.

3. House Rent Allowance (HRA): HRA is given to employees to cover their accommodation expenses. The amount of HRA can vary based on the city of residence and is usually calculated as a percentage of the basic salary.

4. Conveyance Allowance: Conveyance allowance is provided to employees to cover their travel expenses between home and work. This amount is usually fixed and does not vary based on other factors.

When fixing the salary for a new employee, it is essential to adhere to the company's policies and guidelines regarding the calculation of these components. Additionally, it's important to consider any statutory regulations that may impact the salary structure.

By following these guidelines accurately, you can ensure that the salary fixation process for a new employee is transparent, fair, and in compliance with the relevant rules and regulations.

Hi all,

Please add deduction factors too. This is also a component of salary. I am mentioning a few:
1) Employees' Provident Fund
2) ESIC
3) Profession Tax
4) Labour Welfare Fund
5) LIC (if attached to salary)

These are general deductions; I hope other members will add more.

Regards

Hi,

Well, my current package is 2.5 lakhs as I am a fresher, but my take-home is less. The rest amount goes into superannuation, medical reimbursement, LTC, etc. So, I want to know if it is possible for my company to include that medical benefit within the range of Rs 15,000 as a part of salary. Is it also possible for superannuation, and will it be taxable? Please help me because I have been asked to restructure the CTC of my company.

Hi all,

Nice to read all from you. I have one query. Is it mandatory to include HRA as a component of salary? We want to remove this component from the salary breakup, but one of my good friends is saying that it is mandatory to give a minimum of 5% of HRA as a component of salary. Can you please help me out?

Thanks & regards,
Bibek Banerjee

Hi Expertise's,

Can anyone please let me know what the tax percentage and tax limit amount are for all the salary components listed?

Regards,
Suresh Gopu

Hi Taruna,

Basic (40%)
HRA (50% or 40% as the case may be)
Medical Allowances
Conveyance Allowances (Up to 800 pm)
Special Allowances: (Yes, it is fully taxable. If not specified, it is only exempt under section 10(14) to the extent the amount is utilized for the specified purpose for which the allowance is received.

Hope this is clear.
Cheers,
Prashant
Manager - HR

Hi Taruna,

Basic (40%)
HRA (50% or 40% as the case may be)
Medical Allowances
Conveyance Allowances (800 pm max)
Special Allowances: Yes, it is fully taxable. If not specified, it is only exempt under section 10(14) to the extent the amount is utilized for the specified purpose for which the allowance is received.

Hope this is clear.

Cheers,
Prashant
Manager - HR

Rs. 15,000 medical reimbursement is non-taxable to the employee if bills are produced. However, at the same time, the company has to pay Fringe Benefit Tax (FBT) on it.

Hi,

I have a doubt on LTA. Is it up to 15000 per annum non-taxable, or are the actuals incurred in 2 journeys in a block of 4 years?

Please reply.

Regards,
Gaurav

Hello everyone,

I am a fresh HR working for a software service provider startup company. I have to configure payroll for my company. Can anyone tell me what are the components that I should include and please let me know the important calculations as well.

Regards,
Arpita Kapoor

Is there a checklist for this? Please send me if anything of such sort is maintained, like the taxable ceiling limit and the basic headers. Thanks.

Reimbursement of Uniform Purchase up to 10K and maintenance up to 6K annually, which sums up to Rs. 16K annually as per section 10(14).

Hi Mithun,

Please tell me if the mobile phone allowance and fuel allowance (petrol/diesel) will be taxable or not.

Thank you,
Mithun
09289298203

Dear All,

Please let me know what the logic is behind keeping the basic salary as 30 to 40% of the total salary and the HRA as 40 to 50% of the total salary.

Regards,
Shalini

I am posting this query for the first time in your forum. I want to know in what way a salary of Rs. 55,000 per month can be bifurcated under different component heads. Please mention the component heads. Please suggest a way that can be suitable for reducing tax liabilities.

Many components constitute the salary structure in India. Some of these components are fixed, some are variable, and some are deductible from the employee's salary.

Following are the major salary components in India:

1. Basic Salary
2. House Rent Allowance
3. Dearness Allowance
4. Conveyance Allowance
5. Medical Allowance
6. Mobile Allowance
7. Children's Education Allowance
8. Books & Periodicals Allowance
9. Leave Travel Allowance
10. Bonus
11. Gratuity
12. Arrears
13. Incentives
14. Income Tax
15. Provident Fund
16. Professional Tax
17. Employee State Insurance Premium
18. National Pension Scheme
19. Labour Welfare Fund
20. Other Deductions