Hi,
I am in the process of setting up a startup and am about to hire a couple of people. Their salaries are 10 lakh and 14 lakh. Now, I don't want that even when they are getting such good packages, their take-home is peanuts. Can anyone please design a package for me that can ensure the maximum take-home salary for the 10 lakh and 14 lakh packages, keeping in mind Indian taxation laws? I shall be grateful to you as this will be a great help to a startup.
Thanks again,
Vishal
From United States, Saint Louis
Acknowledge(0)
Amend(0)
1I am in the process of setting up a startup and am about to hire a couple of people. Their salaries are 10 lakh and 14 lakh. Now, I don't want that even when they are getting such good packages, their take-home is peanuts. Can anyone please design a package for me that can ensure the maximum take-home salary for the 10 lakh and 14 lakh packages, keeping in mind Indian taxation laws? I shall be grateful to you as this will be a great help to a startup.
Thanks again,
Vishal
From United States, Saint Louis
Acknowledge(0)Amend(0)
Hi Roshni, I am attaching one salary breakup in which i have also taken example of Gross salary:INR 14,00,000 lacs. Kindly see to it. Hope it helps !!
From India, Delhi
Acknowledge(0)Amend(0)
From India, Delhi
Acknowledge(0)Amend(0)
Thank you very much for your prompt response. I would appreciate it if you could provide some details on how to divide the salary of Rs. 10 lakh and Rs. 14 lakh.
@ Ekta - The Excel sheet is highly informative. I am curious to know what falls under the city compensatory allowance. I am planning to set up my office in Noida. Will there be any special considerations for that? After going through other discussions, I did not come across any mentions of a city allowance. Is it tax-deductible, or will we be required to pay FBT (Fringe Benefit Tax) on this?
From United States, Saint Louis
Acknowledge(0)Amend(0)
@ Ekta - The Excel sheet is highly informative. I am curious to know what falls under the city compensatory allowance. I am planning to set up my office in Noida. Will there be any special considerations for that? After going through other discussions, I did not come across any mentions of a city allowance. Is it tax-deductible, or will we be required to pay FBT (Fringe Benefit Tax) on this?
From United States, Saint Louis
Acknowledge(0)Amend(0)
check the enclosed computation. try more options at the given source therein.
From India, Gurgaon
Acknowledge(0)Amend(0)
From India, Gurgaon
Acknowledge(0)Amend(0)
Hi Vishal,
CCA is an allowance given to an employee to compensate for the rise in the cost of living in a given city. It is given to the employee at the discretion of the management. The objective of including this salary element is to provide an additional amount to meet the high expenses of employees living in metro cities like Mumbai, Delhi, Bangalore, etc. It is taxable. Usually, companies fix the amount of CCA, and it is completely the management's decision.
Refer to this thread also: https://www.citehr.com/388222-cca.html
Regards,
Ekta
From India, Delhi
Acknowledge(0)Amend(0)
CCA is an allowance given to an employee to compensate for the rise in the cost of living in a given city. It is given to the employee at the discretion of the management. The objective of including this salary element is to provide an additional amount to meet the high expenses of employees living in metro cities like Mumbai, Delhi, Bangalore, etc. It is taxable. Usually, companies fix the amount of CCA, and it is completely the management's decision.
Refer to this thread also: https://www.citehr.com/388222-cca.html
Regards,
Ekta
From India, Delhi
Acknowledge(0)Amend(0)
Vishal,
Plan your components of salary in such a way that it consists of some allowance which is paid for some difficult job or involving some risk elements, then it will be non-taxable.
Regards,
Pabitra
From India, Durgapur
Acknowledge(0)Amend(0)
Plan your components of salary in such a way that it consists of some allowance which is paid for some difficult job or involving some risk elements, then it will be non-taxable.
Regards,
Pabitra
From India, Durgapur
Acknowledge(0)Amend(0)
If your company is software you can not put under the head difficult job/ involves risks etc ... you can position it under special allowance for special skills. Regards, Nagesha
From India, Bangalore
Acknowledge(0)Amend(0)
From India, Bangalore
Acknowledge(0)Amend(0)
Hi,
Thanks for your responses. But somehow I am still confused. I wish to know about the Fringe tax benefit. Is this tax still applicable.
If yes, then what I think is that keeping the special allowance will help me put a lesser tax burden on my employee. As I understand the FBT is to be paid by the employer, but I can always make it a part of the employee's CTC. This way the employee, in broad terms, is paying FTB instead of income tax. So he is saving a lot of money.
Can you elaborate on this? I have read so many approaches to break up the salary. Some keep the basic salary as 50% of CTC, some 40%, and some 30%. What is the fundamental behind all this? I know EXACTLY what I want. I want my employee to pay a minimum on taxes so that he can take home the maximum. In a nutshell, I want the actual payout close to the CTC.
I will appreciate it if anyone can explain this to me. Thanks in anticipation.
Some info: My company is in Noida. I don't know if it comes under metro or not. And if there are any state taxes too.
Vishal
From United States, Saint Louis
Acknowledge(0)Amend(0)
Thanks for your responses. But somehow I am still confused. I wish to know about the Fringe tax benefit. Is this tax still applicable.
If yes, then what I think is that keeping the special allowance will help me put a lesser tax burden on my employee. As I understand the FBT is to be paid by the employer, but I can always make it a part of the employee's CTC. This way the employee, in broad terms, is paying FTB instead of income tax. So he is saving a lot of money.
Can you elaborate on this? I have read so many approaches to break up the salary. Some keep the basic salary as 50% of CTC, some 40%, and some 30%. What is the fundamental behind all this? I know EXACTLY what I want. I want my employee to pay a minimum on taxes so that he can take home the maximum. In a nutshell, I want the actual payout close to the CTC.
I will appreciate it if anyone can explain this to me. Thanks in anticipation.
Some info: My company is in Noida. I don't know if it comes under metro or not. And if there are any state taxes too.
Vishal
From United States, Saint Louis
Acknowledge(0)Amend(0)
Hi Roshni,
The salary breakup given in the attachment by Ekta is not correct. There are some components mentioned that do not match, such as HRA. It should be 40% of Basic or 50% of Basic in the case of A1 Cities. Additionally, some components should be included for their tax benefits. I suggest you kindly go through the income tax act and then frame a breakup of the salary. The salary must be structured in a way that benefits both the employer and employees in all aspects. I will provide you with more information about it later as I am currently busy.
Regards,
Yash
From India, Delhi
Acknowledge(0)Amend(0)
The salary breakup given in the attachment by Ekta is not correct. There are some components mentioned that do not match, such as HRA. It should be 40% of Basic or 50% of Basic in the case of A1 Cities. Additionally, some components should be included for their tax benefits. I suggest you kindly go through the income tax act and then frame a breakup of the salary. The salary must be structured in a way that benefits both the employer and employees in all aspects. I will provide you with more information about it later as I am currently busy.
Regards,
Yash
From India, Delhi
Acknowledge(0)Amend(0)
Dear Mr. Vishal,
There is no FBT now. There are no big tax concessions, be it Metro or non-metro. Do not worry too much about tax saving for the employee. He must plan his tax, not you.
Salary Structure must take into consideration the following:
1. His/Her skill and experience level and market conditions.
2. Motivate him to perform.
3. Certain elements to ensure that he stays with you.
4. Social responsibility like PF, medical, etc.
Basic Pay:
30 to 35% of CTC might be assigned to Basic. 50% is okay at lower salary levels, but at higher levels, keeping it at 30 to 35% will help an organization maintain parity.
Monthly Allowances:
30% of CTC could be assigned towards. Some organizations give this as Flexi allowance. The amount is constant but gives flexibility for an employee to assign the amount as per his tax-saving plans. If you want to plan and give, then you can give under HRA, Education Allowance, Conveyance.
Annual Allowances:
5% of CTC could be under this head. This will include LTA (tax exemption), Medical (Tax exemption), Attire allowance (Tax exemption).
This also helps you to defer your expenses to the next year and also help you to release after the employee stays with you for a year. This may not be applicable in the case of medical, but certainly in attire and LTA, you can release the payment only if the employee stays with you for a year.
Performance Pay:
At the CTC level indicated by you, plan for 15 to 20% towards performance pay.
Social Security:
This will be closer to 10% of CTC. In this case, PF act is not applicable. However, I recommend the inclusion of all employees under PF. This helps in Tax reduction and also future saving. Medical insurance for hospitalization needs to be planned, and the premium you pay towards medical insurance is exempted from tax.
With my experience, I estimate approximately 10 to 15% of CTC will be taxable subject to the employee's savings. Housing loan, HRA, and certain annual benefits, and it is everyone's responsibility to pay to that extent as a citizen.
Thanks,
Sivasankaran
From India, Chennai
Acknowledge(0)Amend(0)
There is no FBT now. There are no big tax concessions, be it Metro or non-metro. Do not worry too much about tax saving for the employee. He must plan his tax, not you.
Salary Structure must take into consideration the following:
1. His/Her skill and experience level and market conditions.
2. Motivate him to perform.
3. Certain elements to ensure that he stays with you.
4. Social responsibility like PF, medical, etc.
Basic Pay:
30 to 35% of CTC might be assigned to Basic. 50% is okay at lower salary levels, but at higher levels, keeping it at 30 to 35% will help an organization maintain parity.
Monthly Allowances:
30% of CTC could be assigned towards. Some organizations give this as Flexi allowance. The amount is constant but gives flexibility for an employee to assign the amount as per his tax-saving plans. If you want to plan and give, then you can give under HRA, Education Allowance, Conveyance.
Annual Allowances:
5% of CTC could be under this head. This will include LTA (tax exemption), Medical (Tax exemption), Attire allowance (Tax exemption).
This also helps you to defer your expenses to the next year and also help you to release after the employee stays with you for a year. This may not be applicable in the case of medical, but certainly in attire and LTA, you can release the payment only if the employee stays with you for a year.
Performance Pay:
At the CTC level indicated by you, plan for 15 to 20% towards performance pay.
Social Security:
This will be closer to 10% of CTC. In this case, PF act is not applicable. However, I recommend the inclusion of all employees under PF. This helps in Tax reduction and also future saving. Medical insurance for hospitalization needs to be planned, and the premium you pay towards medical insurance is exempted from tax.
With my experience, I estimate approximately 10 to 15% of CTC will be taxable subject to the employee's savings. Housing loan, HRA, and certain annual benefits, and it is everyone's responsibility to pay to that extent as a citizen.
Thanks,
Sivasankaran
From India, Chennai
Acknowledge(0)Amend(0)
Dear Vishal,
While designing a compensation structure for your start up, you may like to keep in mind the following simplified considerations :
1. Maximum take home pay with least taxation (as you have mentioned) as a bait to attract and retain employees/talent.
2. Least amount of clerical work in claims processing various components of pay and reimbursements to make it least unwieldy.
3. Lower pay components (to keep the comp. structure simple) such that intricacies of taxation, claims and subjective interpretation on taxable components is minimized.
4. Make the comp. structure such that the same is scalable in future.
In present times, most of all loopholes in pay components have been plugged, meaning that it is more difficult to skip tax. The earlier large basket of cafeteria items have been consciously done away with by even large corporations since most component heads are taxable these days.
In designing, the more important aspect is what all components will you introduce, i.e. a basic pay, HRA ( House Rent Allowance can be claimed if one lives in a rented premises and the rent exceeds 10% of the salary. The actual HRA exempted from tax is considered as least of the following: The actual amount of HRA received; 40% of salary. This increases to 50% if you are renting out the house in Delhi, Mumbai, Chennai or Kolkata; Rent paid minus 10% of salary (basic component + dearness allowance) Note that salary for the purpose of HRA means: Basic + D.A (only if it is forming part of salary for retirement benefits) + commission (if it’s a fixed % of sales turnover); Conveyance (Allowance upto INR 800/- or a fuel reimbursement), Special Allowance, CEA (upto 2,400/- p.a.), CCA (if you so desire), Medical (upto 15K p.a.), Prof. mags/journal reimbursement (say, INR 1000 p.m.), Qualification Allowance (upto 24K p.a.), Training Allowance (upto INR 14K p.a. on production of bills), Telephone Allowance (upto 12K p.a. for official use & production of bills), LTA (availed twice in block of 2 years - this is a sort of deferred pay component), PF (voluntary contribution if applicable), Gratuity, etc. to avail maximum benefits under the IT Act, 1961, prominently under sections: 80C, 80D, 80G and Sec 24.
The choice is yours and you need to take a call on what all components to include in your pay structuring from a short/medium/long term perspective. The percentage apportionment of pay amongst different components will depend on few factors such as the city/town classification and pay balancing requirements. Moreover, from a taxation perspective, a lot will also depend on the employees' investments in tax saving instruments during the course of a fiscal year.
Salary structuring needs to be done carefully considering that it has far reaching implications on your business and an employee's career and pay. For instance, performance increments, bonuses, ex-gratia payments, etc. (whether paid on basic/gross/CTC or any other consideration will depend on your pay structure that you had initially designed. Changing the structure can become a nightmare later, should you see an ambitious growth in your business and larger headcount & hierarchies of employees. It becomes quite complex later. It is good to start and remain professional in all aspects of business including the C&B rather than think of according sporadic pay offers/increments, thus disturbing pay differentials and pay parity as you move along.
The fringe benefits tax imposed on employers vide the India's Finance Act 2005 was introduced for the financial year commencing April 1, 2005 now stands abolished in the 2009 Union budget of India by the current Finance Minister.
Hope this accords some clarity.
Rahul
9968270580
From India, New Delhi
Acknowledge(0)Amend(0)
While designing a compensation structure for your start up, you may like to keep in mind the following simplified considerations :
1. Maximum take home pay with least taxation (as you have mentioned) as a bait to attract and retain employees/talent.
2. Least amount of clerical work in claims processing various components of pay and reimbursements to make it least unwieldy.
3. Lower pay components (to keep the comp. structure simple) such that intricacies of taxation, claims and subjective interpretation on taxable components is minimized.
4. Make the comp. structure such that the same is scalable in future.
In present times, most of all loopholes in pay components have been plugged, meaning that it is more difficult to skip tax. The earlier large basket of cafeteria items have been consciously done away with by even large corporations since most component heads are taxable these days.
In designing, the more important aspect is what all components will you introduce, i.e. a basic pay, HRA ( House Rent Allowance can be claimed if one lives in a rented premises and the rent exceeds 10% of the salary. The actual HRA exempted from tax is considered as least of the following: The actual amount of HRA received; 40% of salary. This increases to 50% if you are renting out the house in Delhi, Mumbai, Chennai or Kolkata; Rent paid minus 10% of salary (basic component + dearness allowance) Note that salary for the purpose of HRA means: Basic + D.A (only if it is forming part of salary for retirement benefits) + commission (if it’s a fixed % of sales turnover); Conveyance (Allowance upto INR 800/- or a fuel reimbursement), Special Allowance, CEA (upto 2,400/- p.a.), CCA (if you so desire), Medical (upto 15K p.a.), Prof. mags/journal reimbursement (say, INR 1000 p.m.), Qualification Allowance (upto 24K p.a.), Training Allowance (upto INR 14K p.a. on production of bills), Telephone Allowance (upto 12K p.a. for official use & production of bills), LTA (availed twice in block of 2 years - this is a sort of deferred pay component), PF (voluntary contribution if applicable), Gratuity, etc. to avail maximum benefits under the IT Act, 1961, prominently under sections: 80C, 80D, 80G and Sec 24.
The choice is yours and you need to take a call on what all components to include in your pay structuring from a short/medium/long term perspective. The percentage apportionment of pay amongst different components will depend on few factors such as the city/town classification and pay balancing requirements. Moreover, from a taxation perspective, a lot will also depend on the employees' investments in tax saving instruments during the course of a fiscal year.
Salary structuring needs to be done carefully considering that it has far reaching implications on your business and an employee's career and pay. For instance, performance increments, bonuses, ex-gratia payments, etc. (whether paid on basic/gross/CTC or any other consideration will depend on your pay structure that you had initially designed. Changing the structure can become a nightmare later, should you see an ambitious growth in your business and larger headcount & hierarchies of employees. It becomes quite complex later. It is good to start and remain professional in all aspects of business including the C&B rather than think of according sporadic pay offers/increments, thus disturbing pay differentials and pay parity as you move along.
The fringe benefits tax imposed on employers vide the India's Finance Act 2005 was introduced for the financial year commencing April 1, 2005 now stands abolished in the 2009 Union budget of India by the current Finance Minister.
Hope this accords some clarity.
Rahul
9968270580
From India, New Delhi
Acknowledge(0)Amend(0)
They keep the basic less because company has to calculate their bonus and increment from basic only.
From India, Bangalore
Acknowledge(0)Amend(0)
From India, Bangalore
Acknowledge(0)Amend(0)Looking for something specific? - Join & Be Part Of Our Community and get connected with the right people who can help. Our AI-powered platform provides real-time fact-checking, peer-reviewed insights, and a vast historical knowledge base to support your search.
Typical salary breakup.jpg
Salary breakup format.xls
Creating a Competitive Salary Structure.doc