Salary Structure Overhaul: What Are the Taxable and Non-Taxable Components?

Hi, could someone share with me the list of taxable and non-taxable salary components? I am planning to change the salary structure of my company and include as many non-taxable components as possible. I am attaching the Excel sheet of my current salary structure and calculations. I would appreciate it if you could update the file and add the components.

Thanks in advance.

Issues with the Pay Structure

The pay structure enclosed is not scientific and contains several errors. You cannot deduct the employee's portion of PF & ESI from their salary. According to the latest Supreme Court verdict, the PF contribution should be on all items except HRA in your present case. The monthly gross salary is actually less than 10,000/- (which is CTC), and this should be reflected in the payroll and payslip.

Income Tax Benefit Components

Income tax benefit components in the salary structure are not required at the salary level you have provided as an example. Please consult with an expert before proceeding further with the projects, as it will require a lot of inputs, especially in the context of different codes related to labor laws that will be introduced in the future.

Regards, S K Bandyopadhyay (Howrah, WB)
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Basic + DA: 3,000
HRA: 1,500
Travelling Allowance: 800
Tech Allowance: 1,500
City Compensatory Allowance: 1,000
Personal Pay: 2,200

Dear Sir,

You can increase the Transport Allowance to Rs. 1600 by removing the Personal Pay (Taxable) and including Children Educational Allowance (Non-Taxable), Uniform Allowance (Non-Taxable), and Reimbursement of medical expenses (Non-Taxable).

Regards,
Ganapathy V

Hi Sandip,

First, your Rs.10,000 gross salary appears defective as it might be less than the 'Minimum Wages' prescribed in WB. Please check your state government's notification on this. Apart from that, if this is the gross salary, the incumbent will not fall into the 'taxable income' bracket as the gross amount works out to Rs.1,20,000 only, which is far below the taxable limit of Rs.2,50,000 per annum for FY 2019-20.

Purpose of Raising Queries

It appears that Sandipg1977 is an Account Manager and obviously has expertise in ITAX. Then what is the purpose of raising the queries? From your last posting, it is also clear about your knowledge base.

Revisiting Pay Structure

What is required in the pay structure, as you have posted at random (as per you), needs some re-look for the following reasons:

1. As per the February 2019 Supreme Court Verdict, it is now essential to increase the percentage of Basic in respect of Gross salary (must be more), especially up to ₹15,000/- PF Gross (Basic/Basic + DA).

2. Also required to consider the proposed definition of wage under the Social Security Code.

3. There is no common element in the salary structure on which all taxable employees will get ITAX rebate. HRA as per conditions, LTA as per conditions, car-related expenses as per conditions, etc., will be applicable for higher-level taxable salaried employees. If you know any other information and based on the Financial budget scheduled on 01.02.2020, please act accordingly.

S K Bandyopadhyay (WB, Howrah)

[Email Removed For Privacy Reasons]

Attached is the updated calculator.

Let me know if you have any questions.

Fully Taxable Components:

Basic Salary: As the cornerstone of the salary structure, the basic salary is fully taxable. It constitutes the core remuneration paid by employers to employees for their professional services.

Medical Allowance: Any allowance provided to cover medical expenses is fully taxable. Despite being a fixed part of the salary, medical allowances are subject to taxation.

Conveyance Allowance: Also known as transport allowance, this allowance for commuting to and from work is fully taxable, with limited exemptions available.

Dearness Allowance (DA): Designed to offset the impact of inflation, DA is fully taxable and is calculated based on a fixed percentage of the basic salary.

City Compensatory Allowance: Provided to employees in metropolitan areas to mitigate the high cost of living, CCA is fully taxable under Indian tax laws.

Project Allowance and Overtime Allowance: Temporary allowances such as project allowances and overtime allowances are fully taxable and are provided to employees to cover project-related costs or compensate for additional work hours.

Partially Taxable Components:

House Rent Allowance (HRA): While HRA enjoys partial tax exemption, it is subject to certain conditions. Employees residing in rented accommodation can claim exemptions based on specified criteria outlined in the Income Tax Act.

Leave Travel Allowance (LTA): Partially taxable, LTA provides exemptions for actual travel costs incurred by employees and their families, subject to specific terms and conditions.

Children's Education Allowance and Hostel Expenditure Allowance: Partially taxable components aimed at supporting educational expenses for employees' children, subject to predefined limits and conditions.