Understanding Salary Components: Why Do Companies Exclude DA and What Are Non-Taxable Benefits?

Respected Seniors,

Understanding Salary Components for Calculations

I would like to know what the different categories or components are in designing the salary head for the purpose of calculations such as EPF, Gratuity calculation, Tax deduction, etc.

The (Basic + DA) is also taken into account while calculating EPF presently in my organization. Can it only be calculated from Basic only, excluding DA?

Why Do Private Companies Exclude DA?

I want to know why companies, mostly private companies, don't have DA in their salary structure. What is the actual logic behind that?

Non-Taxable Salary Components

Lastly, is there any Salary Head Name which is not taxable? (which might benefit the employee in saving the take-home pay!)

Regards,
Sangita

Salary Components Breakdown

1. Basic - 40% of the gross salary
2. HRA - 50% of basic in metro and 40% non-metro
3. Conveyance - $800 fixed per month
4. Medical Allowance - $1250 fixed per month
5. LTA (subject to company policy and entitlement) - 8.33% of Basic
6. Superannuation (Subject to company policy) - can be 3% - 6% of basic
7. PF (Subject to company policy) - 12% of basic (employee contribution)
8. Flexible component - it's a fixed amount like driver, petrol reimbursements

Gratuity Calculation

Gratuity calculation is as follows:
Gratuity = (Basic + DA) * 15 / 26 * (No. of years completed)

Regards,
Sarfaraz
Manager HR
Vardhman Pharma
Bangalore

Dear Sangita,

Components of Salary Structure

The following may be the components in the salary:

- **Basic Salary:** 40%-50% of Gross CTC
- **HRA:** 50% of Basic
- **Transport Allowance:** ₹800 fixed (Exempted from Income Tax)
- **LTA:** 8.33% or Max. ₹5000 per month (Exempted if claimed every alternate year with proof of travel)
- **Uniform Allowance:** Not fixed (Total Taxable)
- **Washing Allowance:** Taxable
- **Medical Reimbursement:** 8.33% of basic or max ₹1250 per month, non-taxable
- **Bonus:** 8.33% for Commercial units & 20% in factories
- **PF:** 12% of BASIC + DA (May be limited up to ₹6500 as per EPF current limit, depending upon company policy)

The (Basic + DA) is also taken into account while calculating EPF presently in my organization. Can it only be calculated from Basic only, excluding DA? - NO, DA is an allowance linked with Basic and is part of BASIC applicable in Government Organizations, Public Sectors, and organizations where labor unions are active and do negotiations. Generally, DA revisions are done in that negotiation, e.g., 10% of basic, 15% of basic, like that.

Why Private Companies Don't Have DA

I want to know why companies, mostly private companies, don't have DA in their salary structure? What is the actual logic behind that? - Mostly, private organizations fix the salary in terms of CTC and negotiate on gross salary (CTC), and there is no DA as part of the salary head.

Non-Taxable Salary Head

Lastly, is there any Salary Head Name which is not TAXABLE? (which might benefit an employee in saving the take-home pay!)

All allowances are taxable, and all reimbursements are non-taxable.

Regards,
Ajay Pal Singh
Head - HR & Admin

attribution https://www.citehr.com/465481-salary...#ixzz2YdjnGINM

Thank you, Mr. Sarfaraz and Mr. Ajay Pal Singh, for your prompt reply. And to all dear seniors, I have a few more contradictions on salary designing, viz:

Importance of Basic Salary Design

Designing the basic salary is highly crucial in identifying employee positions (designation), determining the mode of increment as per the level of his/her position, as well as EPF and Gratuity contributions, etc.

Q1. Minimum Basic Salary Requirement

I would like to understand, "What is the starting minimum amount of Basic?" I heard that it has to be not lesser than the residing State wages, skill-wise.

Q2. Basic Salary as a Percentage of Gross CTC

I have seen in my previous work that the basic salary is paid lower, although a fixed amount is added annually to the base on the employee positions (along with the usual increment). But as indicated by both of you, usually, the basic can be 40% to 50% of the Gross CTC. Is that a mandatory compliance? (Keeping in mind that lowering the Basic will result in less contribution from the Employer)

Q3. Absence of DA in Private Companies

I still want to know why companies, mostly private companies, don't have DA in their salary structure. What is the actual logic behind that?

Q4. Gratuity Payment through LIC Premium

As gratuity payment in Pvt Ltd. companies is mandatory, the same as EPF regulations, is payment of gratuity through LIC premium a good option? What are the pros and cons?

Q5. Gratuity Membership Registration

Heard that new Registration in Gratuity Membership stopped from 1st July 2013 as per new IRDA Guidelines. Please confirm the same.

Please simplify...

Thank you.

Understanding Salary Components and Legal Obligations

Please refer to your query on salary. The statute mandates the minimum wages to be paid to employees, and beyond a certain number of permanent employees, the company is obligated to enroll in PF and ESI.

The Role of Dearness Allowance (DA)

As far as DA is concerned, it is a component built along with the basic salary for government employees to adjust for inflation periodically, given that generally, government employees receive lower salaries. In the case of private companies, since the globalization era, average salaries are significantly higher, and the necessity for DA and bonuses has rarely arisen.

Thanks and regards,

S. Ganapathy,
Visisht Corporate Growth Associates
Management, Business & HR Consultants
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