Hi, I know the question I am going to ask must have been answered many times here. But after researching on this site, I am not satisfied with the search results.
We are about to start a private limited company and want to know how to structure the salary of the employees and what components need to be added so that both the company and the employees can benefit from tax advantages.
Thank you in anticipation.
From India, Mumbai
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We are about to start a private limited company and want to know how to structure the salary of the employees and what components need to be added so that both the company and the employees can benefit from tax advantages.
Thank you in anticipation.
From India, Mumbai
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Hello! Structuring the salary of employees in a way that benefits both the company and the employees is an important aspect of any organization. Here's a step-by-step guide on how to do this in Mumbai, India:
1. 💰 Basic Salary: This is the most important part of the salary structure. As per Indian labor laws, the basic salary should be approximately 40-50% of the total salary. It is fully taxable.
2. 🏡 House Rent Allowance (HRA): If the employee lives in a rented house, he/she can claim HRA to save taxes. The tax exemption on HRA is the least of the following three amounts: a) Actual HRA received, b) 50% of salary if living in metro cities (40% for non-metro cities), c) Excess of rent paid over 10% of salary.
3. ✈️ Leave Travel Allowance (LTA): This is the component of the salary that employees can claim for their travel expenses when they are on leave. It is exempt from tax twice in a block of four years.
4. 📚 Child Education Allowance: This allowance is given to employees for the education of their children. The maximum exemption is Rs. 100 per month per child for up to two children.
5. 🍽️ Meal Allowance: A meal allowance is exempt up to Rs. 50 per meal during working hours.
6. 🚗 Conveyance Allowance: This allowance is given to meet travel expenses from residence to work and vice versa. It is exempt from tax up to Rs. 1600 per month.
7. 🩺 Medical Reimbursement: This allowance is given to cover medical expenses. It is exempt from tax up to Rs. 15,000 per annum on the submission of medical bills.
8. 🎀 Special Allowance: Any balance left after structuring other components of the salary is generally given as a special allowance. It is fully taxable.
9. 🔮 Provident Fund (PF): Both the employer and the employee contribute 12% of the basic salary towards PF. The entire PF amount including the interest earned is exempt from income tax at the time of withdrawal if the employee has rendered continuous service for five years or more.
While structuring the salary, you should try to maximize the allowances that are exempt from tax. However, remember to comply with all the labor laws and regulations. The best practice is to keep the salary structure simple and transparent. This not only makes it easy for employees to understand their salary but also helps in maintaining a good employer-employee relationship.
Please note that while I have made every effort to ensure the accuracy of this information, it is always advisable to consult with a tax advisor or accountant to confirm the specific laws that apply to your situation.
From India, Gurugram
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461. 💰 Basic Salary: This is the most important part of the salary structure. As per Indian labor laws, the basic salary should be approximately 40-50% of the total salary. It is fully taxable.
2. 🏡 House Rent Allowance (HRA): If the employee lives in a rented house, he/she can claim HRA to save taxes. The tax exemption on HRA is the least of the following three amounts: a) Actual HRA received, b) 50% of salary if living in metro cities (40% for non-metro cities), c) Excess of rent paid over 10% of salary.
3. ✈️ Leave Travel Allowance (LTA): This is the component of the salary that employees can claim for their travel expenses when they are on leave. It is exempt from tax twice in a block of four years.
4. 📚 Child Education Allowance: This allowance is given to employees for the education of their children. The maximum exemption is Rs. 100 per month per child for up to two children.
5. 🍽️ Meal Allowance: A meal allowance is exempt up to Rs. 50 per meal during working hours.
6. 🚗 Conveyance Allowance: This allowance is given to meet travel expenses from residence to work and vice versa. It is exempt from tax up to Rs. 1600 per month.
7. 🩺 Medical Reimbursement: This allowance is given to cover medical expenses. It is exempt from tax up to Rs. 15,000 per annum on the submission of medical bills.
8. 🎀 Special Allowance: Any balance left after structuring other components of the salary is generally given as a special allowance. It is fully taxable.
9. 🔮 Provident Fund (PF): Both the employer and the employee contribute 12% of the basic salary towards PF. The entire PF amount including the interest earned is exempt from income tax at the time of withdrawal if the employee has rendered continuous service for five years or more.
While structuring the salary, you should try to maximize the allowances that are exempt from tax. However, remember to comply with all the labor laws and regulations. The best practice is to keep the salary structure simple and transparent. This not only makes it easy for employees to understand their salary but also helps in maintaining a good employer-employee relationship.
Please note that while I have made every effort to ensure the accuracy of this information, it is always advisable to consult with a tax advisor or accountant to confirm the specific laws that apply to your situation.
From India, Gurugram
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Creating a Competitive Salary Structure.doc
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