Understanding Special Allowances: How Are They Calculated and Added to Salary Slips?

Hi,

Can anybody update me regarding special allowances? I mean to ask what are the criteria for counting special allowances and how one can prepare a salary slip for employees.

Regards,
Vijay

Dear Vinay,

Special Allowance is any allowance given under the following circumstances:

1) To Regularize Salary Structure:

For example, suppose while recruiting a person for a particular position (say Dy. Manager), the annual CTC agreed upon is 12.00 lacs. Now, giving all allowances, perquisites along with the salary for Dy. Managers in your company comes to 11.00 lacs. Now, this extra 1.00 lac can be given by way of Special Allowance.

2) To save post-retirement benefits:

For example: If the Basic Pay of employees is increased, it has a cumulative effect on PF, Gratuity, and Leave Pay. Therefore, most companies, when giving a high rise in salary, usually give the rise in Special Allowance to save themselves from paying high retirement benefits and higher contributions to PF, Gratuity, and Leave Pay.

Always remember, it is easier to change Special Allowance as it can be treated and adjusted on a case-to-case basis, while the same cannot be done for other allowances and perquisites like HRA, Conveyance, which are generally set based on grade/designation. So, Special Allowance is an allowance where if you cannot put a payment under any other heads, you put it under Special Pay.

3) Others: Special Allowance relating to any court order, legislature, or nature of duty.

Revert back for further queries.

Regards,

SC

Hi SC,

Thank you for your valuable comments. Secondly, I want to know what the criteria are to decide on HRA. According to my knowledge, it should be 5% of the total basic or Rs. 40, whichever is higher, but I still have some doubts. Please share your comments on the above topic.

Regards,
Vijay

Dear Vijay,

Sorry for the delay.

You have said:

"According to my knowledge, it will be 5% of the total basic or Rs. 40, whichever is higher, but I still have some doubt."

This percentage and amount are given in state House Rent Allowance Acts. For example, the 5% of Basic Salary is mentioned in the West Bengal House Rent Allowance Act. Therefore, for employees covered under this Act, in states where there is such a statute, you must provide the stated minimum amount as per the same.

For HRA, since there is an Income Tax Benefit by way of rent paid, it is always better to provide a substantial amount under HRA to avail the tax benefits.

Regards,
SC

Hi,

Following is the salary sheet format. You just need to input the salary in the sheet, and it will automatically provide the breakdowns. I have also attached a salary slip format for your reference.

[sal slip Format .doc](https://www.citehr.com/attachments/34543d1217506089-format-salary-slip-sal-slip-format-.doc)

Hi SC,

I am Rajan. As you said, Special Allowance can be changed as per requirement. Also, you mentioned to avoid a high portion of contribution to PF. For bonus and gratuity, we can keep Special Allowance as per our requirement, but it cannot attract contributions towards PF. With the basic salary, we cannot consider Special Allowance for bonus and gratuity calculations. Perhaps in many companies, Special Allowance is fixed by government notification half-yearly or monthly, and in that case, we cannot change it.

I do not agree with point number 1 that one lakh can be put in Special Allowance. Please advise.

Rajan

Hi Swastik, thank you so much for sharing the information. That was really helpful! :)

Dear all,

Can anybody help me to calculate Special Allowance and Conveyance Allowance? Please let me know the percentage (%) to calculate these allowances.

With Love,
Ashok

Hi, I'm sending you a copy of the Salary Slip Structure.

Can any of you please tell me in detail about the Special Allowance (on minimum wages declared by the government), which is also called Government Special Allowance or Govt. VDA? The reason for this question is that our management wants to abolish the practice of giving VDA based on the CPI index and to start the Government Special Allowance declared from time to time in place of VDA. Please provide detailed information.

Regards,
KKRameshan.

Statutory Provisions for Special Allowance

Is there any provision in any statute regarding the treatment of special allowance? Whether or not basic pay includes special allowance? Is there any government guideline regarding its treatment?

Please let me know if you need further assistance.

Regards,