Salary Break-ups: Are There Standard Rules We Should Know About?

Just want to know about Salary Break-ups! Are there any standard break-up rules that need to be followed. Is there anyone here who can answer this?

Hi,

CTC stands for Cost to the Company, i.e., the total expenditure of the company towards a particular employee. It includes every cost in terms of money and materials. Some of the components are:

- Gross Salary
- Bonus
- PF Contribution from the employer's side
- ESI or Medical contribution from the employer's side
- Cell Phone Allowance
- Hard furnishing goods
- Food coupons

The contents of the salary breakup are as follows; you can prepare it according to your own suitability:

- HRA would be 50 or 60% of basic.
- Basic
- HRA
- TA
- 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 provided to an employee who is not covered under ESI, as the maximum ceiling for ESI is 10000/Month. Getting more than this will be covered under Mediclaim or it depends on the company policy.
- Annual Fixed Gross Cost = Gross/Annum + PF + ESI + Med
- Ex-Gratia/Bonus = A fixed amount as Bonus
- Annual Total Cost = AFGC + Ex-Gratia/Bonus

Annual total cost is also called CTC.

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

Regards,

Amit Seth.

Hi Amit,

Can you please explain the list below?

Annual Fixed Gross Cost = Gross/Annum + PF + ESI + Med EX-Gratia/Bonus = A fixed amount as a Bonus Annual Total Cost = AFGC + EX Gratia/Bonus

Regards, Prativa

Hi Prativa,

I am not understanding what you require to know; it is clearly written. Regarding ex-gratia/bonus, most of the corporates fix a gross amount as ex-gratia, which is paid during the festival Diwali on a pro-rata basis. This means it is paid based on the duration of service or at the time of separation from the organization as well.

Annual total cost is the total amount that is spent over the employment.

Regards,

Amit Seth

Hi Amit,

Could you please help me out in formulating a salary structure based on the CTC provided to an employee to minimize the tax burden on the employee (for employees who generally fall into tax brackets)?

Regards,
Sashmita

Hi Sashmita,

The salary break-up which I have shown above includes many components that are tax-exempt. For example:
- HRA is exempted from taxes.
- Medical Reimbursement of Rs. 1250/- per month is exempted.
- CCA of rupees 825/- per month is exempted.
- There is a certain tax exemption on the mobile allowance.

Additionally, you may consider adding more components that are exempted from taxes, such as:
- Education allowance.
- Newspaper and magazine allowance.
- Petrol allowance up to a certain limit.
- Driver allowances.

I hope this information will help you in structuring the salary at your end.

Regards,
Amit Seth.

Thanks for the information, Amit. Please correct me if I am wrong. Those components that are to be paid against bills (barring a few - like medical expenses up to a limit), the employer needs to pay FBT on this.

Regards,
Sashmita