Understanding Salary Breakup: Is There a Legal Basis for Basic + DA and HRA Calculations?

Discussion on Salary Details/Breakup

I would like to start a discussion on Salary Details/Breakup. On what basis do we consider Basic + DA as 30%-50% of Gross and HRA as 30%-40% of Basic + DA? Is there any law to calculate the same? For example, we calculate PF as 12% on Basic + DA and ESI as 6.50% (1.75% & 4.75%). This calculation is considered as per the Employee State Insurance Act 1948 and Employee Provident Fund and Miscellaneous Provisions Act 1952.

Like the above-mentioned ESI & PF calculation, do we have any act to calculate Basic + DA & HRA?

Kindly discuss the same or provide the appropriate information.

Regards

Hello Aditya,

To the best of my knowledge, there is no law that determines the proportion between Basic and DA. Different states have minimum wages that ascertain the Basic Wage and changes therein linked to inflation. This can form the basis of determining the Basic and DA relationship. Some states also have Basic and DA, wherein Basic remains constant over a period of time whereas DA keeps changing linked to inflation.

As regards HRA %, the Income Tax Act lays provisions for HRA taxation which, in turn, forms the HRA equation as a % of Basic + DA. Percentages differ based on city category. It is better to consult a professional CA while determining salary structures.

Trust this helps.

Regards,
Rajesh