Understanding Salary Components: How Do They Impact Your CTC and Gross Salary?

Can someone share the list of salary components and their percentage to CTC and Gross Salary?

Importance of Various Salary Components in Payroll Processing

What is the importance of various salary components in payroll processing?

As per the existing Act, Basic & DA are mandatory. In a few states like Maharashtra & WB, Minimum HRA is mandatory.

HRA will allow for an exemption from Income Tax. Splitting, as with other allowances, will reduce the Basic wages and the overheads of the organization. According to the existing Act, there is no percentage of Basic on the gross wages, but very soon, once the Wage Code is implemented, the scenario will change.

Salary Components

Salary components include Basic, DA, HRA, Conveyance, Medical Allowance, Special Allowance, Mobile Allowance, etc. If equal to the minimum wages, the full amount should be included in Basic + DA. If the wages are higher, then Basic + DA should be 50% of CTC. HRA should be 50% of Basic + DA in Delhi, Chennai, and Mumbai, and 40% in other places (depends on zone-wise as per Minimum Wages Notification). Conveyance should be 1600, Medical Allowance should be 1250 (out of ESI), and the remaining amount can be included in Special Allowance.