New to Salary Breakdowns: Need Help Structuring Employee Pay Without Tax Burden

Hi,

I have been following this forum for the past three days and have gathered a lot of information that I never thought I needed. Thanks to the online community for helping people.

I am looking for a salary breakup format that I can create for employees of the company. According to the instructions provided to me, I need to include the following components: Basic, HRA, LTA, Phone Allowance, Internet Allowance, Medical, Conveyance, and DA. If not required, we do not want PF.

I am very new to this and don't understand anything at all. Could someone please help me with the following queries:

1. Breakdown of salaries around 96,000 per annum.

2. Is there anything to be deducted from the company's side with this salary?

3. The company has a leave policy that includes leave encashment (should that be included in the total salary).

4. Is PF deduction compulsory for companies?

5. If yes, how much should be deducted, and are there any conditions for reimbursement when the employee leaves?

6. We want to structure it in a way that if employees' salaries increase and they fall into tax brackets, they are not heavily burdened, and we don't have to change our structures.

7. Are there any taxes to be paid from the employer or the employee's side based on this structure?

I apologize for asking so many questions, but I need urgent assistance with this. It would be greatly appreciated if someone could help me design the salary slip accordingly.

1. Rs. 96,000/- per annum comes to Rs. 8,000/- per month.

2. If you want his PF to be deducted, then you can keep his salary at a minimum of 60% of the gross salary. Otherwise, you should keep his salary above Rs. 6,500/-. Beyond Rs. 6,500/- as basic, you need not pay PF, provided you fill in Form No. 11.

3. The rest of the amount can be divided into other salary components, but bear in mind the taxable impact of such allowances.

4. You cannot include an amount for Leave Encashment in his total package as it is uncertain how many leaves will remain at that time. However, you can make a provision for that.

5. There would be no tax implications on Rs. 96,000/-.

I hope this clarifies your doubts to some extent.

Thanks,
Aditya Gupta

Thanks for the quick help.

Can you please explain what this means:

2. If you want his PF to be deducted, then you can keep his salary at a minimum of 60% of the gross salary. Otherwise, you should keep his salary more than Rs. 6500/-. If the basic salary is above Rs. 6500, you do not need to pay PF, provided you fill in Form No. 11.

My interpretation is that if I keep the basic salary less than 6500, it is obligatory to deduct PF from the employee. If that is the case:
- What percentage of PF needs to be deducted?
- What is the procedure for the return of PF once the employee leaves?

Can someone also help me divide the remaining amount into other categories with PF contributions and those without PF provision?

Thanks for the informative help.

Hello,

I was reading through the forums and I saw somewhere that you can register for the PF department and deduct PF only if the number of employees that you have is more than 20. Is that right? Please comment as we have only 8 employees right now.

Thanks.

Hi,

First of all, a company can only be registered with the PF department after completing 3 years of establishment. Moreover, you are very much correct that it requires at least 20 employees without the aid of power to enroll with the Act.

Regards,

Amit Seth

Hi,

You can go ahead with this format:

Basic: 3000
HRA: 1200
LTA: 800
Mobile: 400
Internet: 200
DA: 1500
Conveyance: 900
Gross/Month: 8000
Annual Fixed Cost: 96000

As the number of employees is only 8, there is no need for PF and ESI contributions.

Hope this works for you.

Regards,
Amit Seth

Hi!

Rs. 96,000.00 is the annual salary, thus Rs. 8000.00 is the monthly salary. At this level, in my opinion, PF should be given, but since you have only 8 employees at the moment, you can actually do away with this. The breakup, which would be tax-beneficial to employees, could be as follows: Basic: 50% of Gross i.e., Rs. 4000.00 HRA: 50% of Basic Rs. 2000.00 Conveyance Allowance Rs. 800.00 Medical Allowance Rs. 1200.00 In the above-mentioned breakup, conveyance allowance and medical allowance are totally exempted up to a maximum of Rs. 800 and Rs. 1250 pm, respectively. On HRA also an employee will get exemptions in case he is staying in a rented accommodation as per the rules. More than anything else, I would like to add, you may have any structure they will not attract any tax since the threshold limit for tax is Rs. 1,10,000.00 for males and Rs. 1,45,000.00 for ladies.

Regards, Madhumita

Hi Madhumita,

You have spoken very truthfully regarding the tax exemptions. Though a detailed explanation was not necessary, you have provided comprehensive and useful information. However, I would like to draw your attention to the fact that he specified the contents he wished to be covered under the CTC of 96000/-. Unfortunately, you did not consider all of those.

Kindly assist him with an alternative that includes all the items he requested if mine is not satisfactory.

Regards,

Amit Seth.

Hi Madhumita and Amit,

The company in which I work has not provided me with any specific rules on how to divide the gross salary. They simply give me a figure and ask me to bifurcate it. Please suggest what I should do. I have read that 50% of the gross should be Basic, 50% of the Basic should be HRA, and so on. Are there any official rules for this?

My company's breakdown is as follows:

- Basic Salary
- HRA
- Conveyance Allowance
- Education Allowance
- Other Allowance
- Medical Allowance
- LTA

Deductions include:

- Provident Fund (12% on Basic)
- TDS if applicable
- Professional Tax Deductions

Please advise me on the rules for dividing the Gross amount allocated to me. Also, if someone questions me, what explanation can I provide to them?

Regarding TDS, I was told that TDS will be charged for individuals whose Basic is more than 1 Lakh Per Annum. Is that correct? Where can I find the rules for this?

I am awaiting your reply.

Regards,
Satya (Hyderabad)

Dear Satya,

Yes, you have asked a very relevant question, but can you give us a CTC figure of which you have to prepare a break-up.

Anyways, the Basic would be approximately 40 - 50% of gross, and 40 - 60 % of that would be HRA. Conveyance Allowance is fixed at 800/- and it's exempted from Tax. Educational Allowance is approximately 450 per child and restricted up to 2 only. Medical allowance is 1250/-, which is also exempted from tax. LTA that you may include in the gross or better leave it out from the gross, that you may pay on actual. Other allowance is the remaining amount to complete the Gross salary, i.e.

Other Allowance = Gross - (Basic + HRA + CA + Medical + Edu All)

So, we can say Gross Salary = Basic + HRA + CA + Med + Edu + Other Allowance.

Out of this, only two components may be deducted, one being PF, which would be 12% of Basic, and ESI at 1.75% of gross if only Gross is below 10,000/-.

Regarding TDS, with this financial budget, the ceiling has been increased from 1,00000/- to 1,10,000/-. I think Madhumita has explained that very nicely.

Above, I have explained only regarding the Gross/Month. Regarding CTC, you have to do some more exercise.

First, calculate Gross/Annum = 12*Gross/Month, then add Ex-Gratia or Bonus in a lump sum, it will now become AFGC (Annual Fixed Gross Cost). Then add PF contribution and ESI at 4.75% of Gross if applicable from the employer side per annum, then it becomes your CTC or ATC.

It means CTC = Gross/Annum + Ex-Gratia + PF & ESI contribution.

If any other benefits are being provided from the company side, then you should also add them to conclude your CTC.

Hope it is now very clear to you. If you have any queries, feel free to revert.

Regards,

Amit Seth.

Hi,

The basic salary seems to be very low.

Basic (Gross-500)1.55 = 4839

HRA (45% of Basic) = 2177

Conveyance = 500 Fixed

Utility Mobile+Internet (10% of Basic) = 484

Gross = 8000

EPF and ESIC registrations are a must after you have 10 employees in your company. Profession Tax and Labour Welfare fund are applicable, and you have to register and start deducting from employees' salaries. Employers' contributions are payable, and returns have to be filed once a year.

Hi Amit/Madhumita,

Whatever you have mentioned regarding the salary structure is great. I would like to know if the company's turnover crosses a certain limit (as mentioned at the time of registration/income tax), don't you think the company should deduct the PF and provide a bonus or incentive based on the company's profit?

Please let me know your response. Thank you.

Turnover has nothing to do with EPF/ESIC/LWF/PT. It is the number of employees that counts. If turnover crosses 40 lakh Rs. per annum, you may have to deduct tax on behalf of your employees.

Siva

Hi Hazaidi,

As you mentioned, the Basic seems to be low, but it depends on the gross income per month. It should be approximately 35-40% of the gross amount.

Regards,

Amit Seth

Hi Siva,

As I discussed earlier, there is no point in contributing to PF, as any newly set-up organization is exempt from coverage for up to 3 years. Additionally, the number of employees required is 20 without the use of power for the same.

He has already mentioned that it's a newly set-up organization, so PF coverage is not required. Furthermore, ESI is also not needed as the number of employees is only 8.

Regards,
Amit Seth

Hi Pawan,

Deduction of PF doesn't depend on the company profits. To deduct PF or to implement PF coverage in any organization, the company needs to be at least 3 years old. Regarding bonuses, it depends on the profit, and nowadays, most companies include bonuses as ex-gratia in the CTC.

Regards,

Amit Seth

Dear Madhu,

This is in reply to your previous email as mentioned below.

Could you please advise me on the different slabs? For example, gross salary slabs range from 10000 to 15000, 15001 to 30000, and beyond.

Then, we have the slabs for these ranges of gross salary as below:

Between 10000 - 15000 salary:
- HRA is 6500
- Medical allowance is 1250
- Conveyance 800
- Uniform allowance is 800 pm

As this is entitled for people with a salary range of 10000 to 15000. What if a person joins on the 13th of the month? How would that affect the HRA, medical, and conveyance, as the gross would change since he would be paid for only 18 days? Will that affect the other components of the salary?

Please advise.

Regards,
Pooja

Rs. 96,000.00 is the annual salary, thus Rs. 8000.00 is the monthly salary. At this level, in my opinion, PF should be given. However, since you have only 8 employees at the moment, you can actually do away with this.

The breakup, which would be tax beneficial to employees, could be as follows:

Basic: 50% of Gross i.e., Rs. 4000.00
HRA: 50% of Basic Rs. 2000.00
Conveyance Allowance Rs. 800.00
Medical Allowance Rs. 1200.00

In the above-mentioned breakup, conveyance allowance and medical allowance are totally exempted up to a maximum of Rs. 800 and Rs. 1250 pm, respectively.

On HRA, an employee will get exemptions in case he is staying in a rented accommodation as per the rules.

More than anything else, I would like to add, you may have any structure, they will not attract any tax since the threshold limit for tax is Rs. 1,10,000.00 for males and Rs. 1,45,000.00 for ladies.

Regards,
Madhumita

Satya,

LTA that you may put in gross or better leave it from gross that you may pay on actual. Other allowance is the remaining amount to complete the Gross salary, what does it mean. What is the benefit if LTA is not included in Gross.

---

Satya,

Regarding the Leave Travel Allowance (LTA), you have the option to include it in the gross salary or exclude it and pay it separately based on actual expenses. Other allowances make up the remaining amount to reach the total gross salary. Could you please explain what this means? Additionally, what are the benefits of not including LTA in the gross salary?

Hi,

Please find the attachment of the Salary Matrix just entered for CTC per annum. It will provide the details of the breakdowns.

Cheers,
Pawan Krishna

Hi all,

Often, I see that many are following the pattern of Rs. 800/- for conveyance and Rs. 1500/- for medical. This is good for IT exemption. However, there are employees who feel that much of PF deduction need not be done for various reasons.

For such cases, I have devised a structure like this: basic-40%, HRA-30%, conveyance-10%, Special allowance-10%, others-10%.

Nowadays, what do we get for Rs. 800/-? Just Rs. 800/- for conveyance in a Metro is ridiculous and needs correction from the Finance Ministry. So, it is not always necessary to stick to Rs. 800/-. The employer can pay more than that, but tax exemption is limited to Rs. 800/-. That's it. Always ensure that the basic is between 40% to 60%, HRA between 30% to 50%, and conveyance, medical, others can be split according to your choice.

For those with a taxable income after allowing deductions, they should consider going for savings under Section 80 series.

In the forum, someone asked if PF has to be deducted during maternity leave. Yes, it has to be. Since the Basic is paid for 3 months (12 weeks), PF has to be deducted considering it as contribution days.

I am the Manager-HR at a Chennai BPO company.

Regards,

Chandru

Regarding the Professional Tax (Prof Tax), the tax is paid by the company to the corporation within which the business is conducted. Prof Tax consists of the Employee share prescribed by every corporation on a Gross of 6 months. Therefore, we deduct the professional tax from the employees every month, while some deduct it once every 6 months. It is paid in April/September.

Additionally, there is a Company tax component which is also levied by the Corporation. For those companies with a pre-paid capital of more than 10 lakhs, the Company tax is 1000/- half-yearly. This tax is paid in April/September.

The Labour Welfare Fund goes to the State Labour Department, and a monthly periodical will also be sent to us.

I am the Manager of HR in a BPO in Chennai.

Regards,
Chandru

The fixed salary heads in our company are more than required. I want to reduce it to five or six heads and make LTA and Medical reimbursement part of the annual package. Please help formulate.

Dear All,

Can anyone help me, please? I am working in a private company in Pondicherry. My gross salary is Rs. 7900/-. Could you please provide me with the salary breakup details with percentages from top to bottom, as follows:

- Basic
- HRA
- Conveyance Allowance
- Allowance
- Gross Salary
- PF (Employee's)
- ESI (Employee's)
- Professional Tax
- Other deductions, if any
- Net Salary
- PF (Employer's)
- ESI (Employer's)
- Gratuity
- CTC

Thank you for your assistance.

Dear Amit,

Please help me with the salary breakup. My CTC is Rs. 7,00,000. What would be the best breakup to ensure I receive the maximum amount after all the deductions?

Thanks and Regards,
Ram

Dear Mr. Ram,

The break-up would be prepared in two parts: one would be fixed and the other in terms of reimbursement, which shall be paid after producing the supporting documents. Moreover, the second part would help you in tax exemption up to a certain limit.

Basic: 18000
HRA: 9000
CCA: 800
Education: 500
Special Allowance: 5000
Total: 33300

Reimbursement Components:
Medical Reimbursement: 1250
Books & Periodicals: 2000
Petrol: 5000
Entertainment: 2000
Driver: 4000
Car Maintenance: 1500
Phone: 3000
Business Development: 3000
Meal Vouchers: 1000

Total: 22750

Gross PM: 56050
Gross PA: 672600
Gratuity: 10476
LTA: 18000
CTC: 701076

Hope it helps you to structure the same.

Regards,
Amit Seth.

Dear Amith,

Just one correction: the holiday period of three years is no longer included in the Act. The only condition now is having 20 or more employees.

Siva

Hi, I am looking for the salary breakup of Rs. 38,300 per month, which includes Rs. 2,000 per month as a food allowance. I am working with the NGO based in Delhi as a Veterinary Officer. Can anyone provide me with the salary breakup, and how do I file income tax?

Dr. Prabhakaran Palanichamy
drprabhakarvet@friendicoes.org

Dear Sir,

Kindly let me know how to calculate the salary breakup in an easy way. What is the basic rule?

Regards,
Disha

Hi Disha,

I hope I have described the break-up in very easy steps. Please go through the first page; you will definitely understand the basic steps to prepare a salary structure.

Regards,

Amit Seth.

Hi Puneet,

I am new to this group and would like to understand how to calculate the salary. Are there any rules or regulations regarding the basic salary, HRA, LTA, and Conveyance Allowance? I would appreciate an appropriate solution to my query.

Thanks and regards,
Puneet

Hi,

We have started a new company, and at present, there are 12 employees working here. So, I want the format of salary breakup that I can devise for employees of the company. Could you please provide me with the format of how these components are calculated, such as Basic, HRA, DA, Conveyance, Education Allowance, etc.? Additionally, I would like to know if PF, ESI, and Professional Tax are applicable to our company. I am very new to all this and do not understand anything. Can someone please help me out with the following queries:

1. Break up for salaries of $30,000/month.
2. Is there anything to be deducted from the company's side with this salary?
3. We want to devise the structure in such a way that if the employees' salaries increase and they come under tax brackets, they are not burdened too much, and we are not required to change our structures.
4. Are there any taxes to be paid from the employer or the employee side based on this structure?

It would be great if someone could help me design the salary slip accordingly.

Hi All,

Enclosed, please find a simple format to design a salary break-up. I hope it shall be useful.

Regards,
Amit Seth.

Hello Amith,

Thank you for the information. I have one more question: Some people have told me that the employer's maximum PF contribution can be Rs 780 or 12% of the basic salary, whichever is less. Is that true?

Thank you.

Hi,

Here are the details of the salary breakup for the salary of rupees 45,000/-

Sr. Particulars Salary / Month Salary / Annum

1 Basic 22,500 270,000
2 HRA 9,000 108,000
3 Conveyance 800 9,600
4 Education Allow 200 2,400
5 Special Allow. 6,212 74,544
6 Medical Reimbursement 1,250 15,000

Total Salary / PM - Part A 39,962 479,544

1 Mediclaim 300 3,600
2 PF 780 9,360
3 Gratuity 1,071 12,852
4 PL 1,313 15,750
5 Bonus 1,874 22,491

Salary Part B 5,038 60,453

Gross Salary - A + B 45,000 539,997

Hope this information is helpful.

Regards, Amit Seth.