Navigating Salary Breakup: How to Structure Basic and HRA for Tax Benefits?

Hi, I kindly request you to reply to my query. We are a shop establishment company (Private Limited Company), and I want to know the salary breakup with percentages. We have the following as part of the salary: Basic, DA, HRA, CA, MA, EA, and Adhoc Allowances. I want to know the percentage breakup for these categories.

Relation Between Basic and HRA

Is there any relation between the Basic and HRA? How should it be structured for the employee’s tax benefits?

Understanding EA and Tax Benefits

What is EA, and is it tax-free? Till what limit?

Tax-Free Limits for MA and CA

How much MA is tax-free? How much CA is tax-free?

Professional Tax Slabs

What are the slabs for PT?

The final in-hand salary will also depend upon the TDS.

Regards,
Anne Priya.A

As per the TNSE Act, we can follow the structure mentioned below:

Basic Salary Structure

- **Basic:** 60-70% (From CTC)
- **HRA:** 30-40% (Depends on place like rural, urban, metro) from Basic
- **MA:** Fixed and max 1000 Rs

You can fix other allowances, but if they exceed 1000 Rs, it will be taxable income for people exceeding the tax ceiling limit.

Components of Salary

1. **Basic Salary:** This is the core part of the salary, and many other components may be calculated based on this amount. It usually depends on one’s grade within the company’s salary structure. It is a fixed part of one’s compensation structure.

2. **HRA (House Rent Allowance):** It is calculated from the basic salary and differs based on the locality of the company. A 30-40% allocation is considerable.

3. **HRA Tax Exemption:** HRA is not considered under taxable income. If the employee is staying in a rental home, they should submit the PAN card of the house owner and a receipt to get an exemption for the tax.

4. **Professional Tax:** This is mandatory and differs by state. You can pay the tax every 6 months, 3 months, or monthly.

5. **MA (Medical Allowance):** This is a fixed component, with a maximum of 1000 Rs applicable. It can be taxable if it exceeds 1000 Rs.

6. **CA (Conveyance Allowance):** This is also a fixed component and similar to MA.

All these components are taxable depending on the company. If required, you can add other things too as allowances.

Regards

Thank you, Sir, for this valuable information. As per the new PF guidelines (Karnataka, Mysore), the existing salary limit of Rs 6,500 has been increased to Rs 15,000, thereby expanding both the membership base and the quantum of contributions.

Since PF calculation will depend upon Basic + DA, what should be the percentage of Basic and DA under the shop establishment act? In your previous reply, you had mentioned it as 60% of CTC. If we have to include DA, what will be the calculation? Please let me know.

Regards,
Anne Priya.A

Understanding Basic Pay and Dearness Allowance (DA)

Basic pay is mandatory at any cost, and DA reflects the present market status. DA is calculated based on the basic pay and varies depending on the market value and inflation rate each year. Typically, DA can be considered as 50-60% at most.

As you mentioned, basic pay plus DA constitute the PF, and there is no need to include the DA component separately. Therefore, please do not get confused about this.

Thank you.

Dear all,

Structuring Salary to Minimize Tax Payments

How should we structure our salary to minimize tax payments? Which salary components should be increased and decreased to achieve this goal?

Regards,
Raj Padshah
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