How Can I Design a Salary Breakup of 29.40 Lacs That Benefits Both Employees and Employers?

Hi, I need to design a salary breakup of 29.40 lacs per annum take-home and ensure it is both employee and employer-friendly. Please help.

Salary Breakup for 29.40 Lacs

Breakup of salary:
- **Basic:** ₹147,000 (₹245,000 * 60%)
- **HRA:** ₹58,800 (Basic * 40%)
- **Other Allowance:** ₹39,200 (Difference amount)

Total Deductions
- **PF:** ₹780
- **PT:** ₹200
- **TDS:** 30% of annual income

Earned salary minus total deductions equals [salary payable].

Regards,

As per some company norms, they set a basic salary slab of 6,500. For that, the Provident Fund (PF) is 780. Sometimes, it may differ from company to company.

For such a large amount, the CTC must be structured in a way that maximizes employee benefits from tax implications.

Suggested Salary Structure

1. **Basic** - 40% of CTC

2. **HRA** - 50% of Basic in case of metros or 40% of Basic for non-metros. Rent receipts can be used for tax rebate.

3. **Conveyance** - ₹9,600/- p.a. (Alternatively, Fuel & Maintenance charges up to ₹20,000/- p.m. can be claimed as tax-free if he/she owns a 4-wheeler or ₹5,000/- p.m. in the case of a 2-wheeler). If Fuel & Maintenance charges are availed, the conveyance allowance cannot be availed.

4. **Medical Assistance** - ₹1,250/- p.m. (subject to the production of proof)

5. **Food Coupons** - ₹2,700/- p.m. tax-free

6. **Gift Vouchers** - ₹5,000/- p.a. tax-free

7. **Children's Education Allowance** - ₹100/- p.m. per child (max 2 children) tax-free

8. **Club Allowance** - up to ₹2L p.a. tax-free (Health clubs/holiday clubs with ID card and payment receipt can be claimed for tax rebates)

9. **LTA** - up to 2 basics (tax benefit twice in a block of 4 years, subject to production of Air/Train tickets for self and dependents)

Regards

Please find the Excel sheet for the salary break-up. Most companies are using this type of salary break-up. It may be useful for you and other members too.

Regards

I am a bit confused about your post. Could you please clarify the following for me with reference to the Income Tax Act and decided case laws?

a) Fuel & Maintenance charges up to ₹20,000/- per month can be claimed as tax-free if he/she owns a four-wheeler or ₹5,000/- per month in the case of a two-wheeler.

b) Food coupons - ₹2,700/- per month tax-free.

c) Club Allowance - up to ₹2 lakh per annum tax-free (Health clubs/holiday clubs with ID card and payment receipt can be claimed for tax rebates).

Thanks and Regards,
Divakar

It depends on the company. For example, if we have a salary of Rs. 245,000, our gross pay will be calculated as follows:

- PF: 780
- Bonus: 700
- Medical: 474
- Leave without pay: 10

Total deductions amount to 1,964. Subtracting this from the gross pay, we get 243,036.

Breakdown of Salary Components

- Basic: 35% - 85,063
- HRA: 20% - 48,607
- Conveyance: 36,455
- Medical allowance: 24,304
- Special allowance: 24,304
- City compensatory allowance: 12,152
- City employment duty: 12,152

These figures illustrate the breakdown of the salary components based on the percentages and allowances specified.

Thank you.

Salary Break-up Details

Please find below the Salary Break-up:

- **Take Home/Annum:** ₹2,940,000
**Take Home/Month:** ₹245,000

- **Basic:** ₹1,470,000
**Monthly:** ₹122,500

- **HRA:** ₹735,000
**Monthly:** ₹61,250

- **Telephone:** ₹9,600
**Monthly:** ₹800

- **Medical:** ₹15,000
**Monthly:** ₹1,250

- **Other Allowance:** ₹719,760
**Monthly:** ₹59,980

- **Gross Salary:** ₹2,949,360
**Monthly:** ₹245,780

- **PF:** ₹9,360
**Monthly:** ₹780

- **Take Home/Month:** ₹2,940,000
**Monthly:** ₹245,000

Thanks and Regards,
Abhinav Chandra
Plant HR Head
IMT Manesar
Gurgaon, Haryana

I am working for companies X1 and X2, both of which are sister companies.

Salary Breakdown

From Company X1:
- Basic: 41,000
- Conveyance: 3,500
- HRA: 12,500
- PPF: 4,100
- Medical Allowance: 3,500
- LTA/Driver Allowance: 2,900
- Total: 67,500
- Deductions: 61,500
- Net Pay: 61,350

From Company X2:
- Salary: 47,500
- Deductions: 14,750
- Net Pay: 32,750

Kindly provide me with a salary breakdown that benefits me (to save tax) and my employer.

Regards.

Presuming that your annual income is 13.80 L (67500+47500)x12, find enclosed the suggested pay structure. You can try more options at the provided weblink.

Important Considerations

Just remember the following things:
- Employer's Contribution to PF is exempt from Income Tax.
- Your contribution to PF is deductible u/s 80C (max 1 lac).
- Gratuity is taxable in the year of receipt and that also with certain exemptions, whereas the employer shall get the expense deductible in the current year only.
- Medical reimbursement is exempt up to 15,000 p.a.
- LTA is exempt up to 15,000 p.a.
- Conveyance allowance is exempt up to 9,600 p.a.
- HRA is also exempt depending upon the actual rent paid by you.

Regards,
Rajiv

Most of the tax-saving allowances work best for salaries within 2-4 lakhs per annum. At a higher salary, only HRA saves some money. If you live in a metro city, make it 50% of Basic; otherwise, 40% of Basic. A higher contribution to PF (both employer and employee) also saves taxes as it is fully exempt. Children's education allowance (max 2400 per annum for 2 children), hostel allowance (max 7200 per annum for 2 children), transport allowance (max 9600 per annum), medical reimbursement (max 15000 per annum), LTA (actual spent) can also save some money.

Regards, Rajiv

People talk about food/gift vouchers, uniform, driver, vehicle, and petrol allowance. If these allowances are introduced, can I save some tax? If yes, please provide the details on how it can be done.

Regards,
BMandBM

See, anything given in the form of a fixed allowance is taxable besides the ones I mentioned in my earlier post.

Food Vouchers

The rule (Rule 3(7)(iii)) states that the value of free food and non-alcoholic beverages or meal vouchers provided by the employer is exempt from income tax to the extent of Rs. 50 per meal. Please note that the tax exemption is to be calculated on a per-meal basis and not on a per-month basis. Many organizations provide meal vouchers to the extent of Rs. 3,000 per month and do not calculate any tax on the same. Some payroll managers argue that Rs. 50 per meal translates into Rs. 100 per day (assuming two meals per day) and finally into Rs. 3,000 per month (for 30 days) and hence meal vouchers are exempt to the extent of Rs. 3,000 per month.

In addition, the meal vouchers issued to employees should be non-transferable and used only in eating joints. Since tax exemption is restricted to Rs. 50 per meal, payroll managers would do well to issue meal vouchers only in Rs. 50 (or less) denomination. The issuance of meal vouchers of a higher denomination (say, Rs. 100) may attract tax.

At the end of each month, payroll managers should make note of loss of pay and other leave days (Casual Leave, etc.) of employees and correspondingly calculate the perquisite value for the meal vouchers issued.

Gift Vouchers

Regarding gift vouchers, as per my knowledge, the same is exempt for gifts below Rs. 5000/- p.a.

Uniform allowance and Professional Journal allowance are exempt from tax to the extent the expense has been incurred [sec 10(14) read with rule 2BB].

Driver/Vehicle/petrol, etc., if given as an allowance, will be fully taxable. However, if the company gives a chauffeur-driven car, the same is taxable/exempt as perquisites u/s 17 up to certain limits depending upon the car cubic capacity.

Regards,
Rajiv

I have a query on salary break-up. Though Basic and DA accompany Basic, and then comes HRA, CA, MA, and other allowances, I would like to know the bifurcation of Basic and DA. How will we bifurcate and enter the individual break-up in payroll software? I would appreciate it if somebody could brief me with an example.

Thanks,
Deepa

Attached are salary breakups for salaries of 1.80 lacs and 2.20 lacs per annum. The former comes under ESI, and the latter is out of its purview. You can explore more options at the provided weblink.

Regards,
Rajiv

I want to make it clear that ESI and PF contributions of the employer are part of the CTC of an employee. How do we calculate the bonus in CTC? Please respond soon.

In my opinion, the employer's share of contribution to ESI and PF should be part of CTC. The bonus is 8.33% of Basic. You can restrict the Basic to ₹3500 per month as per the current provisions of the Payment of Bonus Act.

Regards,
Rajiv

Please provide me with a scheme for fuel and maintenance charges for employees and how they are taxed. Also, outline a scheme for the housing provided in the company colony and how an employee can benefit from lower taxes.

Thank you.

I appreciate all your arguments. Normally, every company manages its own principles to provide the salary breakup sheet. This is one method to provide the breakup of an employee.

Regards,
Suresh VVN

Please see the attachment for PF & ESI. If you need any clarification, please post a comment.

Regards,
Suresh VVN

CTC and Salary Breakup Design

Normally, CTC is fixed by the management. Once the CTC is set as per the HR policy, we need to process it.

1. If your company has its own policy to design the salary breakup, duly signed by the authorized person (Vice President HR/Managing Director/Chairman), we will plan what percentage we need to allocate to the basic salary. Once the basic salary is determined, we will allocate the remaining amounts as per regulations such as the Income Tax Act, PF Act, and other applicable laws.

If you want the breakup sheet, I can provide it to you after receiving the above information.

Thanks & Regards,
V.V.N. Suresh