Are These Salary Breakdowns Correct? Seeking Urgent Advice on Statutory Implications

Dear All,

I want your urgent suggestions. Please check if the breakups are generally correct and also tell me if they have any statutory implications.

Rs.4,000/- Per Month: Salary

- Basic: Rs.1600/-
- HRA: Rs.1600/-
- Conveyance: Rs.400/-
- Uniform Allowance: Rs.200/-
- Spl. Allowance: Rs.200/-

Rs.5,000/- Per Month: Salary

- Basic: Rs.2000/-
- HRA: Rs.1600/-
- Conveyance: Rs.400/-
- Uniform Allowance: Rs.200/-
- Spl. Allowance: Rs.300/-
- Medical Allowance: Rs.500/-

Rs.6,000/- Per Month: Salary

- Basic: Rs.2400/-
- HRA: Rs.1600/-
- Conveyance: Rs.400/-
- Uniform Allowance: Rs.200/-
- Spl. Allowance: Rs.900/-
- Medical Allowance: Rs.500/-

Rs.8,500/- Per Month: Salary

- Basic: Rs.3400/-
- HRA: Rs.2500/-
- Conveyance: Rs.400/-
- Uniform Allowance: Rs.200/-
- Special Allowance: Rs.1000/-
- Medical Allowance: Rs.1000/-

Regards and Cheers,

Satyabrata Tripathy

Hi,

As far as my knowledge is concerned, basic is calculated as 40% of CTC. HRA is calculated as 40% of basic (50% in the case of metros). You have calculated the HRA incorrectly. Also, the salary range does not fall into the tax bracket. You can deduct it as TDS.

Regards,
Rubi

Dear Ruby,

Thank you for the prompt response.

What I understand is that the basic salary could account for 30-40% of the CTC, while HRA may range from 30-50% of the CTC. Is this information accurate?

The salary ranges mentioned do not fall under any tax bracket. Therefore, is TDS compliance applicable?

Cheers,
Satyabrata Tripathy

Hi Tripathy,

The basic varies 30-40%, and HRA being 40-50% (for non-metro it's 40% & metro it's 50%). So your information is absolutely correct.

The minimum limit is 1.10 LPA (above this is applicable for taxes). For females, it's 1.45 LPA. So, TDS is equally applicable for income ranges specified by you. Let me know if I am wrong.

Other citehr members, please do comment on this.

Cheers,
Rubi

Dear All,

Your messages on the above topic suggest as if the limits under discussion have any statutory requirement - this is not correct.

In none of the labor laws, it is written how much of CTC should be basic and all that.

Normally, salary structuring is carried out keeping in view to have minimal tax incident on employees and to increase their cash flows.

So long as you are talking about Salary up to Rs. 8500, absolutely no problem with any structure you choose - there would not be tax implication.

However, as you move up, you normally do the following:-

We normally keep basic salary around 30% of CTC for the following reasons:-

1. PF contribution - the employer shall be tax-free. Hence the more the basic, the more employer contribution to PF and less taxability.

2. HRA is normally kept in line with Income tax rules to garner the maximum possible tax benefit.

3. Keep special allowance minimal or eliminate it altogether and adjust it in Basic and HRA - this way you can save tax on tax-free HRA

However, if you want to keep the cash flow of employees high, keep the special allowance very high so that there is very little money allocated to Basic Salary and accordingly lesser Employee PF deduction and Employer PF contribution - obviously it comes with a price tag of a higher tax outgo.

4. Instead of medical allowance, name the component as Medical Reimbursements. It will be tax-free up to Rs. 15k per year subject to the production of actual bills of expenditure.

5. Conveyance allowance - Keep it Rs. 800 per month

Hope all this makes sense.

Regards,

Rajat

Hi Satyabrata,

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

- Basic
- HRA 40-60% is exempted from taxes, depending on the class of the city
- CCA - 825/- is exempted from tax
- Other Allowances
- Mobile Reimbursement
- Medical Reimbursement of 1250/month is exempted from tax

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 provided to an employee who is not covered under ESI as the maximum ceiling for ESI is 10000/Month. Getting more than this will be covered under Mediclaim or it depends on company policy.

EX-Gratia/Bonus = A fixed amount as a Bonus

Annual Fixed Gross Cost = Gross/Annum + Ex-gratia

Annual Total Cost = AFGC + PF + ESIC

Annual total cost is also called CTC.

Apart from this, Food coupons, Holiday packages, and Furnishing items are included in their CTC.

I hope this helps to clear your queries to some extent.

Regards,

Amit Seth.

Dear All,

For basic salary, keep minimum wages in mind. There are no fixed guidelines provided regarding the basic salary and the percentage of it in CTC. In Maharashtra, HRA shall be a minimum of 40%. Conveyance maximum is 800. Education 200. City Compensatory Allowance -- You can fix any amount, but there is no exemption under Income Tax. Medical 1250. Food coupons maximum 1500.

Nitin Nikam

Amit's message:
HRA 40-50% is exempted from taxes, depending on the class of the city.

My comments:
It should be 40 or 50%. 60% HRA is not exempt anywhere.

Nitin's Message:
In Maharashtra, HRA shall be a minimum of 40%.

My comments:
I think this is not validated. I could not find this notification/regulation. Please provide the source of the same.

Regards,
Rajat

Dear Mr. Tripathi,

According to my practical knowledge and the prevailing labor laws, the basic salary should contain minimum wages as specified by the labor department for various categories. The balance amount can be bifurcated accordingly. This will safeguard your organization's interests in the present and future.

Thanks,
Amit Gera

Hi Satya,

A very essential point to remember while structuring a salary is the minimum wage. The basic should be according to the minimum wages of the respective state. In the first case, the gross salary is Rs 4000/-; now it depends on the state where you are structuring the salary. The minimum wage should be maintained; otherwise, labor issues may crop up. Another thing to consider is that HRA should be 40% in the case of non-metros and 50% in metros of the basic salary. Conveyance and Medical allowance should not be greater than Rs 800/- and Rs 1250/- respectively per month. The remaining balance should either be given in variable/flexi pay or as a special allowance, depending on the company's policy.

The above-mentioned norms should be kept in mind while structuring the salary.

Thanks,
Vijay

Hi Vijay,

A very essential point to remember while structuring salary is the minimum wage. The basic should be according to the minimum wages of the respective state. In the first case, the gross salary is Rs 4000/-. Now, it depends on the state where you are structuring the salary. The minimum wage should be maintained; otherwise, labor issues may crop up. Another thing to note is that HRA should be 40% in the case of non-metro areas and 50% in metros of basic salary. Conveyance and medical allowances should not be greater than Rs 800/- and Rs 1250/- respectively per month. The rest of the balance should either be given in variable/flexi pay or special allowance, depending on the company.

The above-mentioned norms should be kept in mind while structuring the salary.

Thanks,
Vijay

Hi Rubi,

As far as my knowledge goes, the basic is calculated as 40% of CTC, and HRA is calculated as 40% of the basic (50% in metros). It seems you have calculated the HRA incorrectly. Also, the salary range does not fall into the tax bracket. You can deduct tax as TDS.

Regards,
Rubi

Again to remind you all...

1. There is no law that mandates you to pay exactly 40/50% of the basic as HRA. You can pay as high as 150% and as low as 10%, and nobody can question you.

2. Again, there is no law restricting conveyance to Rs 800 and medical to Rs 1250.

3. Lastly, no law can dictate that you must pay 40% of CTC as basic. There is only one provision, i.e., basic should exceed the minimum wages in the state, and that is all.

Hi,

I want to know on which site we can get the latest updates on minimum wages in Maharashtra and also on the amendments in the laws and policies.

Thanks,
Sandhya.