Is Basic Salary Supposed to Be Higher Than Allowances? Seeking Advice for IT Salary Calculations

There is a query I have, which one of the CAs had asked me. Is it a rule that the basic salary should not be less than the total of the allowances (HRA + Conveyance + performance)?

Also, I would be glad if you could assist me in designing the most appropriate salary calculator. I belong to the IT industry.

Thanks! Rupali Varma

Hi Rupali,

The contents of the salary breakup are as follows. You can prepare it according to your own suitability. HRA would be 50% or 60% of the basic salary.

- Basic
- HRA
- TA
- Other Allowance
- Mobile Reimbursement per Month
- Gross Per Month = Sum of all the above
- Gross Per Annum = 12 * Gross/Month
- PF Contribution = 12% of Basic/Annum
- ESI Contribution = 4.75% of Gross/Annum
- Medical: The mediclaim facility is provided to employees who are not covered under ESI, as the maximum ceiling for ESI is ₹10,000 per Month. Amounts exceeding this will be covered under Mediclaim or as per company policy.
- Ex-Gratia/Bonus = A fixed bonus amount
- Annual Fixed Gross Cost = Gross/Annum + Ex-gratia
- Annual Total Cost = AFGC + PF + ESIC
- Annual total cost is also referred to as CTC.

I hope this is clear to you now. Feel free to ask if you have any queries.

Regards,
Amit Seth.

Thanks for your inquiry!

Is it a rule that the basic salary should not be less than the sum total of the other allowances? Our salary calculator is as follows:

Basic

HRA (50% of basic)

Conveyance Rs. 800/- per month

Performance Allowance (30% of basic)

Dress allowance (remaining figure)

Please suggest.

The rule is:

Basic salary < total of all allowances?

Basic salary = total of all allowances?

Basic salary > total of all allowances?

Please clarify. I'm really confused.

Hi Rupali,

There is no written rule regarding this. Basic can be less than other allowances, even though it is in practice with some companies.

Regards,
Amit Seth.

There is no rule regarding the proportion of basic salary and allowances. Either you have misunderstood the CA, or he is under the wrong impression. - Hiten

Dear Rupali,

There is no written rule that basic should not be less than the total of allowances.

Regards,
Bhavna

To my knowledge, also, there is no rule for the salary breakdown. In some companies, they calculate the salary breakup with a very low basic so that the PF contribution will be less.

Vasanthi

Hello all!

Thanks for your replies. Please find attached the salary calculator we use in our office and comment if there is anything wrong in it. Dress Allowance is considered as the special allowance, i.e., the balance of the total.