Salary Breakup and Structure

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Salary Breakup
Salary Breakup

Salary Breakup: In exchange for the services provided by their employees, organizations pay their employee’s salaries. Simultaneously The base wage, allowance, gratuities, and other components make up the salary paid to employees.

A salary breakup or structure describes the offered salary in terms of how the many elements that make up remuneration are divided. The employee’s actions, such as the types of tax exemptions claimed, can be significantly impacted by any change(s) to the wage structure, i.e., among the elements. Understanding the components of the pay earned is essential because it keeps the employee informed about how much goes toward required savings and what kinds of tax breaks to claim.

Salary Breakup Elements

The following are a few of the salary breakup’s elements:

Basic Salary

The basic salary, which makes up 35–50% of the entire wage, is an employee’s base income. This fixed sum is paid before any reductions or increases by bonuses, overtime, or allowances. So the employee’s position and the employment sector

Allowances

Employees may receive an allowance while performing their usual job duties. Depending on the type, certainly, it could be entirely taxed or only partially. Further, According to each company’s policies, the allowances offered and their limits will vary.

  • Dearness allowance:

    Dearness allowance is a portion of the base wage given to employees to reduce the effects of inflation. Despite The government provides it to those working in the public sector and their pensions.

  • House Rent Allowance:

    This portion of an employee’s compensation is given to help cover the cost of renting a home. Thus It provides tax advantages to the employees for the annual housing pay. Salary earners who rent housing can apply for this exemption to lower their tax obligations.

  • Conveyance Allowance:

    Conveyance allowance, commonly referred to as a transport allowance, is a type of payment that businesses make to their staff to cover the cost of getting to and from work and home. Note: Instead of the transportation (19,200 rupees) and medical (15,000 rupees) allowances, a standard deduction of Rs. 40,000 has been introduced in the Union Budget 2018.

  • Travel Expenses for Leave:

    Travel expenses for leave are excluded from taxes. When an employee is on vacation from work, it is a benefit that employers offer to pay for their travel costs. According to Section 10(5) of the Income Tax Act of 1961, the amount paid as a leave travel allowance is tax-exempt. The leave travel allowance covers only domestic travel, and air, rail, or public transportation must be used.

  • Medical Allowance:

    A medical allowance is a set sum of money an organization pays its employees to cover their medical costs. Note: Instead of the transportation (19,200 rupees) and medical (15,000 rupees) allowances, a standard deduction of Rs. 40,000 has been introduced in the Union Budget 2018.

  • Books and Periodicals Allowance:

    This sort of allowance is given to employees to assist them in covering the costs involved with buying books, periodicals, and newspapers. It is tax-exempt up to the amount spent on buying books and magazines.

Gratuity

A gratuity is one-time benefit employers give to workers leaving their positions. Besides, Only employees who have worked for the company for five or more years are eligible to receive this. The gratuity sum is given in appreciation for the individual’s services throughout the job—the Payment of Gratuity Act, 1972 states gratuity equals The Act covers most businesses that employ ten or more people.

Employee Provident Fund

Employee benefits programed called the Employee Provident Fund allows for monthly investments from both the business and the employee. It is a tool that encourages employees to set aside a percentage of their pay each month, with the option to withdraw funds after one month from the date of employment termination or upon retirement. The Employee Provident Fund receives an automatic deduction of at least 12% of each employee’s base salary. The Employees Provident Fund Organization keeps up the donations (EPFO).

Professional Tax

The state government imposes a professional tax on the income received by salaried workers and professionals, such as chartered accountants, physicians, and lawyers. The most that can be paid in a year is Rs. 2,500. Employers collect professional tax from employee salaries at predetermined rates and deliver it to the state government on their behalf. The money goes toward funding the Employment Guarantee Fund and the Employment Guarantee Scheme.

Perquisites

Perquisites, often known as fringe benefits, are perks that some workers receive because of their formal employment. These are typically non-monetary benefits that are provided in addition to a wage in cash. Some perquisites are providing a car for personal use, housing without paying rent, paying the premium for a personal accident insurance policy, etc., the salary adds to the financial worth of perquisites, and the employee is responsible for paying taxes.

ESIC

Employers are required to offer the ESIC programme to employees with a gross monthly pay of less than the average Rs. 21,000 meanwhile if they employ ten or more people (20 in the cases of Maharashtra and Chandigarh). Rather The company will contribute 4.75% of the total wage, and the employee will contribute 1.75%.

Give me an example of CTC in a salary.

Cost to Company (CTC) is a company’s annual expense concerning a worker. Accordingly, This depends on the pay and other movable factors that we shall discuss in more detail.

CTC is determined by adding the employee’s basic salary to any other perks they may receive, such as gratuities, EPF contributions, HRA, travel reimbursements, food vouchers, and so forth.

As a matter of fact, The cost of employing and keeping a person on staff is the informal definition of CTC. However, remember that it is not the salary a worker receives every month.

CTC is calculated as:

CTC = Gross Salary + Benefits

Take-Home Salary vs Cost to Company

The final payment made by the employer to the employee each month, after all, investments and tax deductions, is known as the take-home pay.

While CTC is a variable payment that includes savings contributions and indirect benefits.

What other salary structures are there in India?

Moreover There are two different types of salary structures that determine how the salary is divided up and specify CTC:

Two types of Salary Structure:

Top-down
In this type, you define the amounts for different salary components and then add their total as Gross Salary. For example, a basic salary of Rs. 5,000 and DA of Rs. 5,000 would equal a gross pay of Rs. 10,000.

Bottom-up
In this type, you first define total gross before splitting the sum among other parts. For example, if gross is 10,000 rupees, essential is 40% of that amount, and DA is 60%.

How can a salary structure be created in India?

Three components must be in place to create a compensation structure.

External benchmarking is crucial since it enables you to create a fiercely competitive structure in the market.

Secondly, you require an internal job evaluation that enables transparency and fairness in grading various occupations in various functions with multiple skill sets and levels of responsibility.

Finally, information about your current income will reveal the entire cost and affordability.

However, By carefully researching and assessing these three components, you may establish a solid, open, competitive compensation structure.

Salary structure format

Name
Designation
Location
Date of Joining
Salary breakup
Cost to Company: 10,00,000.00
Components Per annum Per month Taxable / Non-taxable
Basic 4,50,000.00 37,500.00 Tax
HRA 2,25,000.00 18,750.00 Tax
Medical 15,000.00 1,250.00 Non-Tax
Special Allowance 1,20,000.00 10,000.00 Tax
Conveyance allowance 36,000.00 3,000.00
Gratuity 75,000.00 6,250.00 Non-Tax
Reimbursements 25,000.00 Paid annually/Tax
PF Employer 54,000.00
Total 10,00,000.00 76,750.00
ESI Deduction
PF Employee 54,000.00 4,500.00
Labour welfare fund 60.0 5.0
Net In-hand Salary 72.245.00

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