Understanding Payslip Essentials for Startups: How to Allocate HRA and Other Deductions?

Hi, This is for a start-up with 10 employees in Telangana. Kindly guide on the necessary components one should have on their payslip.

Questions on Payslip Components

(i) What percentage of the basic salary should be allocated to HRA?

(ii) Is providing a traveling allowance mandatory? If yes, what should be the percentage of the basic salary?

(iii) When is it mandatory to deduct professional tax?

(iv) When is it mandatory to deduct PF?

(v) When is it mandatory to deduct ESI?

(vi) When is it mandatory to deduct TDS?

Your queries are answered below seriatim:

Quantum of HRA

1. The quantum of HRA is based on the city where the employee works. For Hyderabad, it would be much more than the rest of the state. Find out the HRA category for your city from other industries/offices and decide accordingly.

Travelling Allowance

2. Travelling allowance is a perquisite, not mandatory, created for the purpose of spreading the compensation item. There are two types of Travelling Allowance. One is applicable to all employees either as a percentage of basic pay or as a fixed amount, and the other is an allowance provided to defray expenses for travel for official purposes. It would be a rate of TA (like Rs. 10/15 for every km traveled). The latter is essentially a reimbursement of the expenses.

Statutory Deductions

3 to 6: These are statutory deductions that have to be made from the first salary onwards. Before that, complete the formalities required for the enrollment. It is better not to take it easy; ensure full compliance to avoid later complications.