Confused About Basic Salary Percentage in CTC? Does It Vary by Company Policy?

Respected Seniors, I have gone through many posts regarding the percentage of basic salary in CTC. Some said it is between 20 to 40%, some said 45%, and somewhere I saw 51.63%. Is there a fixed percentage that exists or does it depend upon company policies? I am a bit confused.

Regards

Understanding the Basic Component of CTC

There should be no confusion about the basic component of a CTC. The basic component is not governed by any regulation except that it should not be lower than the minimum wages declared by the government.

I have had organizations give 80% basic and some even 30%. It all depends on the company policy and the salary structure that they follow.

Cheers

PF is 12% from the employee's side and 12% from the employer's side. Out of the 12% from the employee's contribution, 3.67% goes to their EPF, and 8.67% goes to their EPS account. PF 12% is calculated based on their basic salary, which in turn is calculated in their gross salary. The percentage of the basic salary depends on the company's policy.

ESI totals 6.50%, with the employee contributing 1.75% and the employer contributing 4.75%. ESI is calculated based on their gross salary.

Thanks & Regards,
Valan

Hi Sujata,

PF is 12% from the employee side and 12% from the employer side. From the 12% employee contribution, 3.67% goes to the EPF, and 8.67% goes to the EPS account. PF 12% is calculated on his/her basic salary, and the basic salary is calculated in his/her gross salary. The basic salary percentage depends on the company policy.

ESI is a total of 6.50%, with the employee contributing 1.75% and the employer contributing 4.75%. ESI is calculated in his/her gross salary.

Thanks & Regards,
Valan

Are there any particular rules for basic fixation, or does it depend on the company policy?

Thank you.

The ideal ratio is 40% Basic and 60% Allowances. Employers keep the basic salary at a minimum for various purposes, such as indirect benefits (PF, ESIC), bonuses, gratuity, and increments. It is always advisable to allocate a higher percentage to allowances, as properly named allowances can provide income tax benefits.

Regards,
Rahul Bagale

Generally, if you have a PF component that is 12% of the basic salary, then it is ideal to have 40% of the CTC as Basic. However, if the company is not enrolled for PF deduction for employees, then you can consider keeping a higher basic but not more than 50% of the CTC, keeping the legal and compliance angle in mind.

Best Regards,
Bhushan

Dear Sandeep,

CTC Design Approaches

CTC can be designed in two ways:

1. CTC is known as gross salary.
2. Gross salary is known as CTC.

Now, the thing is, depending on how you are designing the CTC, the basic component will differ. In the first case, it must be considered that 40% of CTC is the basic component. In the second case, it will be 45% of the gross salary as the basic component.

Regards

First, understand that there are two ways of contributing towards EPF. One is the employee's contribution, and the other is the employer's contribution. Again, there are a few employees who fall under the mandatory contribution slab, and others fall under optional. Depending on your company policy, you can make it mandatory for all employees, taking into consideration that their net pay is not affected or their benefit towards enrolling in EPF. For example, an employee at the age of 56 who has never enrolled in EPF will not benefit if you try to enroll him at this age. So, study your employees' needs properly before making it mandatory for everyone.

EPF Contributions

Coming back to contributions, EPF is mandatory for those whose basic salary component is <=15000 per month. The employee's contribution is 12% of the basic salary. For example, if an employee draws a basic salary of 7000, Rs. 840 will be deducted from his gross pay towards EPF. Also, note that the ceiling limit for EPF calculation remains Rs. 15000 as basic pay. For better understanding, consider an employee whose basic pay is 20000 per month. If they have voluntarily opted for EPF, their EPF contribution will be calculated based on a basic pay of Rs. 15000, as this forms the ceiling amount. The deducted amount would be Rs. 1800 (which is 12% of 15000). Depending on the company policy, you can raise this ceiling to the actual basic pay of an employee, but it's not mandatory.

Employer's Contribution

Now, for the employer's contribution: The employer contributes 13.61% of the basic pay towards EPF. This 13.61% is divided as follows:
- 8.33% towards EPS (Employee Pension Scheme)
- 3.67% towards EPF (Employee Provident Fund)
- 1.10% for admin charges of PF
- 0.5% towards EDLIS (Employee Deposit Linked Insurance Scheme)
- 0.01% towards EDLI admin charges.

Thanks.

ESI is mandatory for employees with gross pay less than or equal to Rs 15,000 per month. It is a two-way contribution. The employee contributes 1.75% of gross earnings per month, while the employer contributes 4.75% of the employee's gross earnings.

Regarding Professional Tax (PT) in Maharashtra:

- It's nil for gross earnings less than or equal to Rs 7,500 per month.
- Rs. 2,100 annually for gross earnings less than or equal to Rs 10,000, but more than Rs 7,500 per month (equivalent to Rs 175 per month).
- Rs. 2,500 annually for gross earnings exceeding Rs 10,000 (Rs. 200 per month and Rs. 300 in February).

Thank you.

I am working as a sales coordinator for a six-month probation, and leaves are not allotted to me. Therefore, I am getting salary deductions by using my leaves from my basic pay amount. I just want to know if deducting salary from the basic pay is right or wrong?