How Do You Break Down Salary Components Like Basic Pay and Allowances? Need Guidance!

Hi Friends,

Please help me to segregate salary into different headings. I understood that normally the earnings will be divided into Basic pay, DA, HRA, TA, EA, Food Allowance, and Washing Allowance. Could someone please explain to me how to determine the amount under each heading? Are there any norms to calculate the maximum applicable amount for each heading from the gross salary?

Kindly advise.

Regards,
Ramesh Kannan

After the fringe benefit tax is being levied, I don't think that all these headings matter. All these headings were used to reduce the tax on the employee. But as the tax now has to be paid on all the said items, it is no longer essential to segregate the salary. However, you can give them food coupons or subsidized canteen facilities which are not taxed.

If you still want to have the list checked, refer to this link started by CHR. [Link removed as it no longer exists]

Thank you for your reply.

My employees and employer feel uncomfortable with paying a significant amount towards PF since we currently pay based on the total salary. If we were to segregate the payment, would we only need to pay based on basic pay + DA? Is my understanding correct? Additionally, for an employee earning around Rs. 6500/-, do the allowances such as HRA, TA, and EA remain taxable?

Regards,
Ramesh Kannan G

PF is normally paid only on Basic+DA, so the lower you keep the Basic + DA, the lower you will have to contribute to the PF. You can segregate the other heads with Food Coupons (Up to Rs. 1100) & Travelling allowance (As in the current Budget, travelling allowance is taxed less under FBT). But while you design your salary heads, keep in mind the tax liability (i.e., FBT on the company or IT on the individual). It should be a perfect mix so that the total tax liability is less and still acceptable to your employee.