Dear Riyu Grewal,
You posted a question what should be the basic salary of employees. You have given an example of gross salary of Rs.20K. Here I would like to explain the concept of basic salary and other allowances applicable thereon. In fact the concept of basic salary arises when there is a properly structured pay scale attached to different level of posts/designation according to job description and responsibilities. A pay structure is designed starting with a minimum pay and ending with a maximum pay with stages of annual increments for a specified period of time say stretched over a period of 15 or 20 or 25 years. Pay structure is devised where there are other allowances, fixed or variable in nature. The concept of pay scale also facilitates both employee and employer to comply with the provisions of various statutes
like Income Tax Act, EPF Act etc.
The question how much pay should be given on a particular post is decided by the Employer depending upon various cost elements and profit element required to manage and operate the business establishment. The pay structure, for example, can be designed as under:
Basic Pay - 60%
HRA - 40%
City Compensatory Allowance - 10%
Transport Allowance (Fixed) - Rs.1000/-
Medical Allowance (Fixed) - Rs.1500/-
The above is only a suggested pay structure. It can be adapted/modified by the employer as per his own financial resources.
Hope this clarifies your query.
With good wishes.
C.M. Lal Srivastava
09818680671