Confused About HRA in CTC? Seeking Guidance on Calculating HRA Percentage in Gross Salary

Understanding HRA in CTC

I have a very big doubt regarding HRA workings in CTC. There is no specific procedure or law that dictates how HRA works. When transitioning to a new PF & ESI structure, HRA is exempted from PF calculations. However, there is no law that stipulates the percentage of HRA in the gross salary. The company may choose to determine the HRA amount based on the locality where it is situated, but this may not be accepted by PF inspectors. Instead, we can refer to the Income Tax Act, which states that 40% of the basic salary should be allocated to HRA. Even though this is a local law, PF officials may not agree with it.

Seniors, please guide me on how we can resolve this issue. I would appreciate your valuable insights.

Regards,
Sakthi

Hi Sakthi, as per my knowledge, for metro cities, it is 50% (Delhi, Mumbai, Kolkata, Chennai). Except for these four cities, all other places are applicable with 40% of HRA.

Audit Requirements by PF Officials

Which documents are to be audited by PF officials at the time of inspection? Please share the legal provisions, examples, case studies, or judgments. I want to be prepared to counter if anybody asks why your HR percentage is X%.

Regards,

If you are paying minimum wages to your workers, just go with Basic + DA prescribed by the Minimum Wages Act for the purpose of calculating PF. For the purpose of ESIC, you have to calculate on the gross payable. HRA payable does not matter in respect to the PF payable. Only in the case of ESIC, it includes...

Regards, Yogesha

PF and ESI Calculation Clarification

For PF calculation, you must take all the components of salary except HRA. A judgment has already been given on this matter. ESI can include HRA as well.

Regards,
Sakthi

As per my knowledge, Basic & DA should not be lesser than the minimum wages. While making a salary breakup, if the salary is much more than the Minimum Wages, then 60% of the gross pay needs to be allocated to Basic & DA (it should not be lesser than Minimum Wages as per the Act). The balance pay can be divided as HRA, Conveyance, etc., in a ratio that generally feels appropriate.

In such cases, PF authorities can't make observations. Are you paying PF for the full Basic & DA or restricted to Rs. 6500/-, which is the present statutory limit? Please check it again.

With Regards,
Mohan Kumar

Understanding PF Calculation and HRA Exemption

Where the Basic + DA does not come under the present ceiling limit of Rs. 6500/-, PF officials would consider all the remaining components for PF calculation. At that time, only HRA is exempted. However, we haven't allocated a higher percentage of HRA from the gross salary.

Seniors, please share your insightful views rather than basic level responses such as the ceiling of Rs. 6500/- for Basic + DA, as this is a fundamental aspect that everyone knows when calculating PF.

Regards.

Salary Breakup and HRA Allocation

I am also unsure about the salary breakup and the percentage to allocate for HRA. For government employees, the percentage of Basic as HRA is legally fixed based on the class of the city (e.g., Metro city, A Class, B Class, etc.).

When creating a salary breakup, if the salary is significantly higher than the Minimum Wages, then 60% of the gross pay can be allocated as Basic & DA. This should not be less than the Minimum Wages, as per government notification. The remaining pay can be divided into HRA, Conveyance, etc., in a ratio that generally seems appropriate or as per government employee standards.

Please discuss!

Regards,
Mohan Kumar