The salary structure I know best is to show a fixed percentage of CTC as basic salary and the rest under choice pay. This setup allows employees to save taxes by providing proper documents or bills to the payroll department.
You can include allowances like uniform reimbursement, research allowance, etc., in the salary structure as these are exempted from taxable income. Also, choose the most suitable clause for HRA to be tax-free so that the employee can have the maximum tax exemption from their CTC.
I agree with Neha. But the query I'm having is whether we need to fix a basic salary first and the rest of the amount be kept under choice pay for the employee. What is the maximum/minimum amount that can be adjusted as a basic salary out of CTC so that the employee can have the maximum benefit?
Most companies nowadays follow a structure where they set a basic salary, typically ranging from 35% to 50% of the gross salary. Additionally, they determine the House Rent Allowance (HRA) based on the city type, usually at 40% or 50% of the basic salary, depending on what is applicable in their city. The remaining allowances mentioned in my previous post are included, and the leftover amount is categorized either as Other Allowances or under a Special Allowances category.
What is the maximum limit of basic salary that can be shown out of CTC? What is the reason for defining a basic salary in CTC along with other components?
Regards,
Shankar
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