Understanding CTC Breakdown: How to Allocate Basic Salary and Add New Salary Heads?

Dear HR Members,

I want to know how the break-up of CTC is done. For example, if CTC is 100,000/-, what will be the Basic? Is there any formula for that? And if we have (Basic+HRA+Conv+LTA+Med) as a salary head and we don't want to include the employees' monthly increment into the Basic, can we add one more salary head?

When adding a new salary heading, what points should be taken into consideration?

Please reply.

Sunil

Hi,

There is no specific rule for structuring a salary breakdown. It can vary based on your company's policy. There are only some guidelines from 'good HR practice'.

1. Keep the Basic pay as high as possible, preferably higher than 6500/- per month.

2. Ensure that the 'HRA' is less than or equal to 50% of the Basic pay. Having it higher than 50% does not provide any tax benefits to the employee. It is advisable to allocate any excess amount to Basic pay as it will enhance retirement benefits. Keeping HRA lower than 40% also reduces available tax benefits. In absolute terms, an HRA amount exceeding Rs. 25,000/- per month is not recommended unless the individual has a documented house rent lease agreement. If other salary components are limited, HRA serves as a parking lot.

3. Strive to maintain the gross monthly salary of an employee above Rs. 10,000.00, unless the company is already registered under ESI benefits.

Based on the above considerations, a CTC of 100,000.00 can be distributed as follows:

- Basic: 50,000.00
- HRA: 20,000.00
- Conveyance Allowance: 9,600.00
- Medical: 5,000.00
- LTA: 5,000.00
- Meal Coupons: 10,400.00

Hope this information is helpful.

Hi Sunil,

The contents of the salary breakup are as follows. You can prepare it according to your own preference. HRA would be 50% or 60% of the basic.

- Basic
- HRA
- CCA - 825/- is exempted from tax
- Other Allowance
- Mobile Reimbursement
- Medical Reimbursement of 1250/month is exempted from tax

Gross Per Month = Sum of all the above.
Gross Per Annum = 12 * Gross/Month
PF Contribution = 12% of Basic/Annum
ESI Contribution = 4.75% of Gross/Annum
Medical = The mediclaim facility is provided to employees who are not covered under ESI, as the maximum ceiling for ESI is 10000/Month. Anything exceeding this will be covered under Mediclaim or as per company policy.

Ex-Gratia/Bonus = A fixed amount as a Bonus
Annual Fixed Gross Cost = Gross/Annum + Ex-gratia
Annual Total Cost = AFGC + PF + ESIC
Annual total cost is also referred to as CTC.

Apart from this, Food coupons, Holiday packages, and Furnishing items are included in their CTC.

I hope this information helps clarify your queries to some extent.

Regards,
Amit Seth.

CTC = BASE + CHOICE + PLI

BASE:
BASIC + PF + GRATUITY

CHOICE PAY:
HRA/COMPANY-OWNED ACCOMMODATION/LEASED ACCOMMODATION + CHILDREN EDUCATION ALLOWANCE + CHILDREN HOSTEL ALLOWANCE + MEDICAL REIMBURSEMENT + CONVEYANCE + FUEL & MAINTENANCE/COMPANY-OWNED VEHICLE + LTA + GIFT COUPON + FOOD COUPON + SUPERANNUATION + SPECIAL PERSONAL ALLOWANCE + HOSPITALIZATION INSURANCE

PLI:
10-5 % OF CTC

All the components of Choice pay elements can be administered with the best policies of taxation.

Regards,
Anil Chilukuri

Dear Anil Chilukuri,

I have provided valuable information regarding CTC. I would like to ask you if my company is providing a car with a driver, including fuel, maintenance, electricity expenses, and telephone expenses at home, and now the company wants to convert all these benefits into CTC. Earlier, the company followed a gross pay system, and further, the company was to pay additional components.

For the calculation of CTC, how should these benefits be considered in value?

Regards,
Manish
kakaca@rediffmail.com
9721169784

Dear Manish,

Please include the expenses associated with the facilities provided to the employee in their total compensation package.

For example, if the costs for a Car/Driver/Fuel/Maintenance/Electricity/Telephone amount to approximately Rs. 3 LPA and the individual's CTC is Rs. 6 LPA, you can adjust their CTC to be around Rs. 9 LPA.

This approach mirrors the concept we apply when transitioning an employee from a Gross structure to a CTC structure.

Thanks & Regards,
Anil Ch.

Hi Everyone,

I am a fresher under the profile of Salary & Compensation. I need the salary breakup of 3.45 lakhs per annum CTC. The salary heads we use here are:

EARNINGS
- Basic
- HRA
- Conveyance allowance
- Medical allowance
- Uniform allowance
- Special allowance
- Child education
- Entertainment allowance
- Other allowances

DEDUCTIONS
- EPF
- ESIC
- Prof. Tax
- TDS

Kindly help me with this structure to show the breakup of 3.45 lakhs per annum as CTC.

Thanks in advance.

Priyanka

Hi,

Can anyone please guide me on how to calculate basic salary, HRA, and other allowances if a person's CTC is 2 lakh and the company is not under PF/ESIC, etc.?

Thanks.