Understanding My MNC Offer: What Salary Components Affect My Take-Home Pay?

I am getting a good offer from one of the multinational companies, and below are the salary components along with Cash Perquisites mentioned by them:

Salary Components

- Basic Salary
- House Rent Allowance
- Transport Assistance
- Retirement Allowance
- Special Allowance

Cash Perquisites

- Medical Expenses
- Leave Travel Assistance
- Residential Telephone / Internet

I would like to know which of these components will be applicable while calculating the in-hand salary. As far as I know, BASIC + HRA is what I will get in hand.

How about the Special Allowance? Will I receive that as an in-hand amount? Also, I would like to know what the retirement allowance is, as they have mentioned the following clause for the same:

"Provident Fund (PF) will be 12% of basic. The Retirement Allowance is not paid if Provident Fund is opted for, in which case the Firm will contribute 12% of the basic salary to your Provident Fund account."

Thanks & Regards,
Sanjay

Understanding Special Allowance

Special allowance can be the amount of money given to you as a city benefit. Hence, it is a flat amount offered to you as a part of your take-home pay. Sometimes, it is masked as a performance bonus, which depends on the performance ratings. Please cross-check it with the hiring manager.

Regards

Thank you, (Cite Contribution), for your response. I will cross-check with the Hiring Manager. In the email, it's written that, in addition to CTC, I am eligible for a performance bonus. This implies that the performance bonus will be outside the CTC. I would also like to inquire about the Retirement Allowance. They have mentioned the clause:

"Provident Fund (PF) will be 12% of basic. The Retirement Allowance is not paid if the Provident Fund is opted for. In that case, the Firm will contribute 12% of the basic salary to your Provident Fund account."

So, if I do not opt for PF, will the Retirement Allowance be paid yearly or after leaving the company? Additionally, if I want to adjust LTA in my monthly salary, is that possible, or can it only be claimed/provided at year-end?

Thank you & Regards,
Sachin

My response to your query for each of the heads mentioned by you is as follows:

BASIC SALARY: This is payable monthly. It will count towards computing your contribution towards PF and Retirement allowance as well as determining the quantum of tax exemption for HRA.

HOUSE RENT ALLOWANCE: This is payable monthly. There is an amount which is eligible for exemption of Income Tax, which you would be able to claim in order to reduce the incidence of Income Tax.

TRANSPORT ASSISTANCE: This is payable monthly and is based on the engine capacity of the car you own. There is a certain amount that can be claimed as a tax deduction for this element as well.

SPECIAL ALLOWANCE: This is payable monthly. It is usually no different from Basic, except that by classifying it as a Special Allowance, it doesn’t get included for purposes of PF, Retiral, HRA, etc., computations. This is not like a “City Compensatory Allowance” as indicated by (Cite Contribution).

RETIREMENT ALLOWANCE: This is deductible monthly. It usually comprises deductions towards PF and any other retirement/superannuation funds that your employer may have towards which you would contribute.

PERFORMANCE BONUS: Usually, there is a targeted performance bonus amount indicated in the offer letter and this is included for the CTC computation. However, depending upon the performance of the employee, the actual payout would vary from a low of 25% of the target amount to a high of 200% of the target amount. Though most companies keep this range between 70% and 150%.

CASH PERQUISITES:

MEDICAL EXPENSES: This is payable monthly, usually for an amount of Rs. 1,250/= (aggregating Rs. 15,000/= per year). You are expected to produce bills for medicines etc., to claim this as a tax-deductible expense; otherwise, it will be charged for tax. The bills need not be produced monthly, but must be submitted prior to the end of the financial year. Most companies require submission of the bills etc., by January.

LEAVE TRAVEL ASSISTANCE: This is a lump sum amount which can be claimed on the basis of submitting evidence of having incurred the expense for LTA. It is tax exempt for two occasions in a block of four years. It is very unlikely that this would be amortized on a monthly basis – usually, it is paid in a lump sum because you need to produce evidence of having incurred the expense. It can be claimed at any time of the year when you take leave and travel. You would not need to wait till the end of the financial year.

RESIDENTIAL TELEPHONE/INTERNET: This is payable monthly as a reimbursement. Usually, this is either a fixed amount or subject to a maximum amount that can be claimed.

Trust this would bring some clarity.

Regards,
Raju Bhatnagar

Well done, Raju Bhatnagar! Hope that helps him understand the components better.

Take-Home Calculation

Now, coming to the take-home calculation. The amount that he would finally get after all the deductions is not what has been mentioned in the letter. It would be around or less than that.

Provident Fund (PF) and Retirement Allowance

PF is mandatory and is a better option. At the point of leaving the firm, the final amount can be drawn by closing the account. It's best if the account is transferred.

Retirement allowance would be released when you leave the firm. Please confirm the taxable amount. Any allowance is susceptible to taxes.

Whereas PF is a benefit. Please weigh your options on the final amount receivable and then choose.

Wish you all the best!

Retirement Allowance Details

Retirement allowance is payable on a monthly basis if you are not opting for the Provident Fund. This allowance is essentially a company contribution of 12% to your Provident Fund and will be paid as a taxable allowance.

Regards.