How to Create a Legally Compliant and Tax-Friendly Salary Structure with Meaningful Allowances?

Hi all, need your urgent attention. Kindly share your inputs on what the ideal salary breakdown should be, taking into account the wage code, PF Act, other acts, and applicable income tax. It should be a legally compliant and tax-friendly structure. Consider which allowances should be included and which ones are meaningful. Adding allowances that aren't necessary is not advisable.

Dear Colleague,

There is no such ideal salary structure you can arrive at at this juncture of unclear status.

Current Status of Labour Codes

As the Labour Codes proposed are taking time, there are further discussions in the direction of whether to allow the allowances at the level of up to 75% for one more year and then, in subsequent years, to the level of up to 50% only. The balance percentage is mandatorily the Basic Pay for all compliance purposes, and this is still undecided. Hence, we need to wait for the outcome.

You can read the below article for academic purposes for now:

https://www.businesstoday.in/opinion...259-2020-12-11

Dear Sir, Thank you for your response. I completely agree with you that there is uncertainty until the announcement is made. Since we have to propose the new structure considering the uncertainty as well, it appears that the government's intention is to raise the Basic salary up to 50% of Gross Salary in the next 1-3 years.

Considering the cost and the government's intention of increasing up to 50%, may I propose Basic + Allowance as follows:

Option 1:
1st year @ 40% + 60%
2nd Year 45% + 55%
3rd Year 50% + 50%

Option 2:
1st Year 45% + 55%
2nd Year 50% + 50%

What allowances do you think we should pay, where employees can avail of tax benefits? Is the employee still getting tax benefits on the following, or has there been a change in Income Tax law?
1. Conveyance up to Rs 800/-
2. Medical Allowance: Up to Rs 15,000 subject to producing documents.
3. LTS: Once in 2 years subject to producing documents.
4. Education: Rs 200 per child or any changes.
5. Any other allowance

Thank you very much. I am looking forward to your response.

Regards, Dharmendra