As an HR Executive, I am a fresher in our company. Somebody has joined, and his salary expectation is 75,000 take-home. I am looking to understand the breakdown of the gross salary, basic salary, HRA, Conveyance allowance, and PF. He is interested in maximizing tax rebates, and apart from these, we do not offer any other allowances. Please explain with an example.
Regards,
Arti HR Executive
From India, Delhi
Acknowledge(0)
Amend(0)
Regards,
Arti HR Executive
From India, Delhi
Acknowledge(0)Amend(0)
Salary breakups depend upon Metro/Non-metro areas; hence, let me know the employee's work location to determine the proper CTC while keeping the take-home salary in mind.
Tax Reduction Strategies
To reduce income tax, an employee can make investments or give declarations until the end of December (i.e., under section 80C, Housing loan, etc.).
Exemptions
- Conveyance of Rs. 9,600 per FY is directly exempted.
- PF amount, up to a maximum of Rs. 100,000 per FY, will be directly exempted under section 80C.
From India, Hyderabad
Acknowledge(0)Amend(0)
Tax Reduction Strategies
To reduce income tax, an employee can make investments or give declarations until the end of December (i.e., under section 80C, Housing loan, etc.).
Exemptions
- Conveyance of Rs. 9,600 per FY is directly exempted.
- PF amount, up to a maximum of Rs. 100,000 per FY, will be directly exempted under section 80C.
From India, Hyderabad
Acknowledge(0)Amend(0)
Dear Arti,
As a fresher, you may find fixing the gross salary (or CTC) a bit complicated and perhaps a little difficult. You may need to take the help of your boss or superior.
Understanding Salary Structure
Simplistically, to explain, there are essentially three parts to it:
1. The structuring of the salary (what all components does your company offer as parts of salary, i.e., a basic salary, house rent allowance, conveyance allowance/reimbursement, leave travel allowance/assistance, other allowances, provident fund (if applicable), ESI (if applicable), gratuity, bonus (if applicable), other reimbursements, etc.).
2. Industry-specific norms (i.e., what compensation and benefits structure do most companies follow in your industry; note in rare cases, they may be driven by some landmark court ruling or even wage-board outcomes).
3. Driven by the minimization of employee pay taxability under the Income Tax Act, 1961.
Significance of Tax Applicability
Conceptually, you will need to understand the significance of tax applicability to certain components of salary, your salary components, and the significance of each component. Salary structure may be different at different levels/grades in your company, and reasons thereto may include certain essential salary components, some not-so-essential components for balancing pay and tax, and some cafeteria items (that may come as reimbursements, fringe benefits, or perquisites) which may be tax-exempt or variably taxable.
Professional Salary Structuring
Normally, professional companies structure the salary of employees at different grades/levels differently to make them tax-friendly (as far as is possible), to conform to industry-specific norms, to maximize take-home pay (net take-home), to make it attractive to attract and retain talent, to encourage annuity savings, to add deferment pay for strategic/statutory reasons, to include (variable)/non-variable performance-pay components, some co-ownership components (stock options (fixed/rolling vesting)/sweat equity/profit-linked commissions/bonuses), and with several other strategic intents that could vary from company to company. There are more reasons too that I have not explained for the sake of maintaining brevity.
Handling Employee Salary Expectations
It is often the best tactic to discourage new joinees from demanding a fixed 'net' (post-tax) pay. Sometimes, it becomes too difficult for an HR professional to structure pay to derive a certain take-home pay for each new recruit. A lot depends on his personal tax-saving investments that he has or may undertake during the course of a fiscal year. Also, your company's compensation structure should be so structured that all employees should get maximum tax savings/rebate without an employee reasoning it out.
The tax incidence of a new employee also depends on which income tax bracket he falls under. Higher-paid employees will pay higher tax and fall into the maximum bracket. Generally speaking, most of all allowances are taxed to varying degrees. Rs 75,000/- net of pay would be equivalent to Rs 9 Lacs per annum net. His gross will be much higher, and he is surely expected to fall in the maximum (30%) income tax slab.
The best answer to such demands/requests from employees is mostly that 'we have a standard salary structure and taxability for all employees at your level/grade is uniform. The salary structure cannot be changed to suit each employee. All employees are treated equitably. Rest will depend on how well you can or have invested in tax-saving financial instruments each financial year. The percentage on each pay component in our pay structure is also fixed by the management and so cannot be changed'.
Current Salary Structure Analysis
As per disclosure by you in your brief mail, your salary structure seems to comprise only Basic, HRA, Conveyance Allowance, and PF (if applicable), typical to a small organization.
Basic pay is fully taxable, HRA is taxable depending on the least of the three conditions provisioned in the Income Tax Act and is dependent on how much of a 'reasonably acceptable' rent receipt the employee can furnish to your company (befitting his level, salary, and size/location of his accommodation). Conveyance Allowance is taxable above Rs 800 per month, and PF attracts a standard rebate under sec 80C of the Income Tax Act.
Your pay structure can certainly be made more tax-friendly to help employees, especially in a higher salary bracket. Consult your Finance & Accounts to gather more knowledge on pay component taxability. This may be an early warning call to restructure your salary structure in a better way. Various Compensation & Benefits components can be introduced, depending on acceptability by your management. HR needs to convince the management on reasons for changing the salary structure. Compensation & Benefits is a specialized subject in HR and requires fairly sound knowledge given that it impacts the company as well as the career/compensation of employees.
Hope this helps you and accords some conceptual clarity.
Regards,
Rahul
[Phone Number Removed For Privacy Reasons]
From India, New Delhi
Acknowledge(0)Amend(0)
12As a fresher, you may find fixing the gross salary (or CTC) a bit complicated and perhaps a little difficult. You may need to take the help of your boss or superior.
Understanding Salary Structure
Simplistically, to explain, there are essentially three parts to it:
1. The structuring of the salary (what all components does your company offer as parts of salary, i.e., a basic salary, house rent allowance, conveyance allowance/reimbursement, leave travel allowance/assistance, other allowances, provident fund (if applicable), ESI (if applicable), gratuity, bonus (if applicable), other reimbursements, etc.).
2. Industry-specific norms (i.e., what compensation and benefits structure do most companies follow in your industry; note in rare cases, they may be driven by some landmark court ruling or even wage-board outcomes).
3. Driven by the minimization of employee pay taxability under the Income Tax Act, 1961.
Significance of Tax Applicability
Conceptually, you will need to understand the significance of tax applicability to certain components of salary, your salary components, and the significance of each component. Salary structure may be different at different levels/grades in your company, and reasons thereto may include certain essential salary components, some not-so-essential components for balancing pay and tax, and some cafeteria items (that may come as reimbursements, fringe benefits, or perquisites) which may be tax-exempt or variably taxable.
Professional Salary Structuring
Normally, professional companies structure the salary of employees at different grades/levels differently to make them tax-friendly (as far as is possible), to conform to industry-specific norms, to maximize take-home pay (net take-home), to make it attractive to attract and retain talent, to encourage annuity savings, to add deferment pay for strategic/statutory reasons, to include (variable)/non-variable performance-pay components, some co-ownership components (stock options (fixed/rolling vesting)/sweat equity/profit-linked commissions/bonuses), and with several other strategic intents that could vary from company to company. There are more reasons too that I have not explained for the sake of maintaining brevity.
Handling Employee Salary Expectations
It is often the best tactic to discourage new joinees from demanding a fixed 'net' (post-tax) pay. Sometimes, it becomes too difficult for an HR professional to structure pay to derive a certain take-home pay for each new recruit. A lot depends on his personal tax-saving investments that he has or may undertake during the course of a fiscal year. Also, your company's compensation structure should be so structured that all employees should get maximum tax savings/rebate without an employee reasoning it out.
The tax incidence of a new employee also depends on which income tax bracket he falls under. Higher-paid employees will pay higher tax and fall into the maximum bracket. Generally speaking, most of all allowances are taxed to varying degrees. Rs 75,000/- net of pay would be equivalent to Rs 9 Lacs per annum net. His gross will be much higher, and he is surely expected to fall in the maximum (30%) income tax slab.
The best answer to such demands/requests from employees is mostly that 'we have a standard salary structure and taxability for all employees at your level/grade is uniform. The salary structure cannot be changed to suit each employee. All employees are treated equitably. Rest will depend on how well you can or have invested in tax-saving financial instruments each financial year. The percentage on each pay component in our pay structure is also fixed by the management and so cannot be changed'.
Current Salary Structure Analysis
As per disclosure by you in your brief mail, your salary structure seems to comprise only Basic, HRA, Conveyance Allowance, and PF (if applicable), typical to a small organization.
Basic pay is fully taxable, HRA is taxable depending on the least of the three conditions provisioned in the Income Tax Act and is dependent on how much of a 'reasonably acceptable' rent receipt the employee can furnish to your company (befitting his level, salary, and size/location of his accommodation). Conveyance Allowance is taxable above Rs 800 per month, and PF attracts a standard rebate under sec 80C of the Income Tax Act.
Your pay structure can certainly be made more tax-friendly to help employees, especially in a higher salary bracket. Consult your Finance & Accounts to gather more knowledge on pay component taxability. This may be an early warning call to restructure your salary structure in a better way. Various Compensation & Benefits components can be introduced, depending on acceptability by your management. HR needs to convince the management on reasons for changing the salary structure. Compensation & Benefits is a specialized subject in HR and requires fairly sound knowledge given that it impacts the company as well as the career/compensation of employees.
Hope this helps you and accords some conceptual clarity.
Regards,
Rahul
[Phone Number Removed For Privacy Reasons]
From India, New Delhi
Acknowledge(0)Amend(0)CiteHR is an AI-augmented HR knowledge and collaboration platform, enabling HR professionals to solve real-world challenges, validate decisions, and stay ahead through collective intelligence and machine-enhanced guidance. Join Our Platform.
SALARY SHEET CALCULATION.xls
Salary calculation.doc