1. In our country, the original salary structure consisted of Salary (Such Salary was called Basic Salary) plus D.A. (Dearness Allowance). Where-in payment of D.A. was directly linked to Consumer Inflation Index and were variable. Therefore for all attendant benefits like Provident Fund, Employees Insurance, Gratuity, Bonus were attached to the Basic Salary.
2. The same practice was adopted by private sector but replacing D.A.(Dearness Allowance) by Special Pay.
3. Thereafter HRA (House Rent Allowance) was made exempt under Income Tax Act with certain conditions,
{HRA between 10% and 40% of Basic Salary (Incase of Metro Cities) and between 10% and 30% of Basic Salary (Incase of Other Cities) was made exempt, if the employee is staying in a rented accommodation and is paying rent equal to that or more than that.
Similarly later-on Conveyance Allowance of Rs. 1600/- per month were also made exempt under Income Tax Act.
Therefore the special pay was further splited in to HRA, Conveyance Allowance and Special Pay.
The private sector can device any structure that helps them to retain an employee and there is noting wrong in this as it has win win situation for both employee and employer.
Jawaharlal Moondra
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