Confused About LTA and Allowances: Are They Really Part of Your In-Hand Salary?

Hi all,

Wishing you a Happy Diwali! I am Payal, working as an HR professional. I am a bit confused about whether we can consider LTA, House Allowance, Entertainment Allowance, mobile reimbursement, petrol reimbursement, etc., as an in-hand amount/salary. Because, as per my knowledge, it is a part of your CTC, but I still need your help.

Thanks

Hi,

According to my knowledge, entertainment allowance, mobile reimbursement, petrol reimbursement, etc., can't be considered as salary. They are a part of the CTC and are considered as incentives because they vary from month to month.

If I am wrong, please correct me.

Wishing you a happy Diwali.

Regards,
Santhosh.P

Yes, Payal.

These are all part of CTC because CTC includes all those hidden costs as well that are going to be spent on an employee in a year.

Regards,
Amit Seth.

Hi Amit,

My company is requesting me to negotiate with the new joiners considering all these allowances as part of the in-hand salary. It's really very difficult for me as I am not in agreement with this point. Please guide me on what steps to take next.

Regards,
Payal

Hi Payal,

LTA can't be paid in cash as it is paid only at the end of the year. Moreover, HRA can be added in CTC and paid every month. Entertainment allowance can be fixed and paid only after receiving the bills. Petrol reimbursement also can't be paid in advance, but you can set up a structure for payment upon presenting bills.

Regarding mobile reimbursement, you can establish a ceiling amount that the company will cover, with any excess being deducted from the salary. I hope this helps you frame the same.

Regards,
Amit Seth.

I am of the opinion that all except the employer's contribution to the PF is considered part of the carry-home pay since we actually take it home, even if only periodically.

Of course, the reimbursement of mobile/telephone expenses and conveyance is provided after the amount is utilized for company work. Therefore, these should not be included in the CTC unless they are given without actual expenditure and are part of the salary breakdown for tax-saving purposes.

Please correct me if my understanding is incorrect and provide logic and rationale.

Regards, Pradeep Bajaj

Dear All,

Can anyone help me determine if LTA, Household Allowance, Entertainment Allowance, Petrol, and Vehicle Maintenance are calculated based on specific percentages or if they depend entirely on the company policy?

It is all as per the company policies; nevertheless, there is a need for rationale, and all should look a bit proportional.

Generally, it ranges between a month's salary in a year and 15%.

Various factors to be considered are:
- Total of the allowances and Basic could be a ratio of 60-40, at the minimum, 50:50.
- The number of allowances the company wants to give; on this factor depends the percentage of the Basic. These allowances could be.

With all the allowances already coming under the provisions of the IT and the introduction of FBT, you need to coordinate with your finance personnel to come to a viable breakup of the salaries.

Nevertheless, should you follow the above guidelines, you are likely to get many workable solutions.

Regards,
Pradeep Bajaj

Dear Payal,

I do agree with Mr. Santu. They are a part of the CTC but not in the Salary. We can even call them as Fringe Benefits given to an employee. A few examples of Fringe Benefits are as follows:

(a) entertainment;
(b) festival celebrations;
(c) gifts;
(d) use of club facilities
(e) maintenance of guest house;
(f) conference;
(g) employee welfare;
(h) use of health club, sports, and similar facilities;
(i) sales promotion, including publicity;
(j) conveyance, tour and travel, including foreign travel expenses.

Truly Yours,

Kumar H.P

Hi Payal,

The contents of the salary breakup are as below; you can prepare it according to your own suitability. 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 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 will depend on the company policy.

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

Apart from this, Food coupons, Holiday package, and Furnishing items are included in their CTC. This information may provide some insights for your benchmarking.

Regards,
Amit Seth.

Hi,

What you said about Entertainment Allowance, mobile reimbursement, petrol reimbursement, etc., can't be considered as salary. They are a part of the CTC and are considered as incentives because they vary from month to month. However, should I consider them under ESI deductions?

If I am wrong, please correct me.

Wishing you a happy Diwali.

Regards,
Nagendra
nagendra.hr104@gmail.com

Hi,

Salary constitutes what you get every month and is reflected in your payslip - Basic, DA, HRA, Conveyance, Special Allowance, etc. This is, in fact, termed as Gross Salary. After deductions, you have the "Take Home Salary" or Net Salary. Besides this, you may have some reimbursements which are admissible on the production of bills/supporting documents. This may be claimed on a monthly/quarterly/yearly basis - the typical ones are Medical, Mobile, etc. But even for these, a cap needs to be fixed (for obvious reasons). When CTC is calculated, all the costs incurred by the company towards a particular employee are taken into consideration.

It is better to explain the above to all the employees because they need to know that, besides the salary, the company spends a lot of money towards other things too, and they do get benefits - maybe the money does not come every month, but it does come.

Regards,
Vasudev

This merits attention.

There is the salary. There are statutes on the same, essentially ESI and PF/Pension/EDLI. There are the allowances. If they don't come under the IT Act, they fall under the FBT Act. Salary, allowances, deductions are based on the statutes. All these form part of CTC.

There are reimbursements of the expenses done for the Company's work, i.e., tele, mobile, transport, conveyance reimbursement (not allowance). Some companies tend to include reimbursements as part of CTC. It is not from the employee's CTC perspective; nevertheless, these are expenses related to the job and need to be considered for data used to ascertain ROIs.

Regards,
Pradeep Bajaj