Startup in Delhi Needs Help with Payroll and Benefits: How Do We Design a Tax-Friendly CTC Package?

Hi, we are a startup and have registered ourselves in Delhi. We are in the phase of hiring people and will be rolling out offer letters in due course. However, we do not have anyone experienced in HR issues and payroll. Hence, we need the help of you experienced folks.

Query 1: Provident Fund Consideration

Do we have to take PF into consideration if our direct employees for this fiscal year will be less than 20?

Query 2: Designing a Salary Breakup

Help us design a salary breakup of 10 Lakh CTC (as an example). We want to make it in such a manner that it is employee beneficial and saves tax. Please help us design the salary separately if we account for PF (at 12% of Basic) as well as if we do not take into account PF. We will provide Sodexo meal vouchers to prospective employees and plan to offer them benefits like transport allowance, medical, and LTC to lower the taxable income. Please let us know the cap for TA, medical, and LTC per year.

Query 3: Understanding Professional Tax and Other Deductions

What is professional tax? What other deductions (like Swachh Bharat cess, education cess, labour welfare, etc.) are deducted from CTC?

Query 4: TDS Calculation Assistance

Please help us with TDS calculation so that we can brief potential employees on the in-hand salary.

Many thanks in advance!

Your detailed queries cover crucial aspects of designing a comprehensive CTC package. Let's address each query systematically:

Query 1: According to the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, if you have less than 20 employees, PF registration is optional. However, once you reach 20 employees, PF becomes mandatory.

Query 2: To structure a tax-efficient salary breakup, consider allocating components like Basic, HRA, Special Allowance, and other perks within the CTC. For PF inclusion, ensure the 12% contribution on Basic. For tax-saving benefits, utilize exemptions on components like transport allowance, medical reimbursements, and LTC. The caps for these allowances are set at INR 1,600 per month for transport, actual medical bills reimbursement, and INR 36,000 for LTC.

Query 3: Professional tax is a state-level tax deducted from employees' salaries. Other deductions like Swachh Bharat cess, education cess, and labor welfare cess are part of the overall tax calculation but do not directly impact the CTC.

Query 4: TDS calculation involves considering the applicable tax slabs, exemptions, and deductions. Provide potential employees with a clear breakdown of their gross salary, deductions, and net take-home pay after TDS deductions. Utilize online calculators or consult with tax professionals to ensure accurate calculations and compliance with tax regulations.