Understanding Salary Structures: Why Are Benefits Allowances Separate and Fully Taxed?

Hi,

In my previous company in Bangalore, they had a salary structure as follows:

- Base Salary (x)
- Basic Salary (y) = 35% of x
- Flexible Compensation = 65% of x
- Benefits Allowance = 3% of x + Rs.10,000
- Retirement Benefits:
- Superannuation = 15% of y
- PF = 12% of y

The Flexible Compensation includes:
- Medical Allowance: 15,000 as per law, annually
- Telephone Reimbursement: As per company policy, annually
- Internet (Broadband) Reimbursement: As per company policy, annually
- HRA: 40% of basic or actuals, whichever is lesser
- LTA: 60,000 annually
- Conveyance: Rs.800 without bills, monthly

I didn't quite understand why they had the Benefits Allowance separately as it is fully taxed anyway. Why is it not part of the Base salary? Is the Base salary any percentage of CTC? What I understood is that you first fix the base salary and then calculate all the other components with a percentage, as I mentioned above. Is my understanding of everything correct?

Dear Shaleo,

As per my knowledge, as you yourself wrote, your basic salary (y) was 35% of gross or base salary, Super Annuation 15% of y, and PF 12% of y. Companies are required to contribute to employee PF and provide benefits and incentives like Super Annuation to employees.

Just think, if the organization has to give PF and SA based on the base salary, will it be cost-effective for the companies? To make it cost-effective, all these calculations or bifurcations are done on basic salary and not on base salary.

Regards,
Ritika Chaurasia.