Is it legal to increase basic pay to 100% of gross pay, and remove all other components for some employees?
For example, if an employee's salary is 15,000, can I split it into
Basic - 10,000/-
DA - 5,000
And remove all other components like HRA, Conveyance allowance etc?
From India, Kottayam
1For example, if an employee's salary is 15,000, can I split it into
Basic - 10,000/-
DA - 5,000
And remove all other components like HRA, Conveyance allowance etc?
From India, Kottayam
You haven't mentioned what is status of your unit and how many employees and some of the important relevant acts are applicable to you.
Basic pay has got it's own status for many purposes, and DA likewise HRA, Conveyance allow. You have not mentioned what's the purpose behind this attempt. If you refer the Minimum Wages act, there is stipulated rates of basics, DA etc.for diff.categories of employment and sectors/employers. Units covered under this Act necessarily have to atleast keep up the minimum stipulated and there is no limit for maximum. And if this bifurcations are thought of in order to reduce the burden of EPF, ESI contributions (which is not in order), it won't serve the purpose after clear cut judgment of the SC dt.28.2.2019 whereby most of the allowances are to be covered for calculation of PF contribution.
Carving out DA from basic will have impact if your DA is linked to revisions in DA arising out of fluctuations in Price Indexes published by the Ministry of Labour from time to time. Similarly defining HRA/Conveyance allw. (upto 2018-19) separately is good & will help the employees to avail income tax relief to the extent permissible under the IT Act which also shall be looked into when you decides to go far bifurcation.
From India, Bangalore
Basic pay has got it's own status for many purposes, and DA likewise HRA, Conveyance allow. You have not mentioned what's the purpose behind this attempt. If you refer the Minimum Wages act, there is stipulated rates of basics, DA etc.for diff.categories of employment and sectors/employers. Units covered under this Act necessarily have to atleast keep up the minimum stipulated and there is no limit for maximum. And if this bifurcations are thought of in order to reduce the burden of EPF, ESI contributions (which is not in order), it won't serve the purpose after clear cut judgment of the SC dt.28.2.2019 whereby most of the allowances are to be covered for calculation of PF contribution.
Carving out DA from basic will have impact if your DA is linked to revisions in DA arising out of fluctuations in Price Indexes published by the Ministry of Labour from time to time. Similarly defining HRA/Conveyance allw. (upto 2018-19) separately is good & will help the employees to avail income tax relief to the extent permissible under the IT Act which also shall be looked into when you decides to go far bifurcation.
From India, Bangalore
Thank you for your response.
Our staff strength is only 15. I wanted to start PF for all employees, even though it is not mandatory for us. A few employees, whose gross pay is above 15000, prefer a higher take home than contributing to PF. Their net taxable income is below the minimum IT slab, hence they enquired whether it is possible to remove HRA component, to bring their basic pay above 15000 limit.
From India, Kottayam
Our staff strength is only 15. I wanted to start PF for all employees, even though it is not mandatory for us. A few employees, whose gross pay is above 15000, prefer a higher take home than contributing to PF. Their net taxable income is below the minimum IT slab, hence they enquired whether it is possible to remove HRA component, to bring their basic pay above 15000 limit.
From India, Kottayam
Our current salary structure is Basic DA = 50% of Basic HRA = 60% of Basic Conveyance Allowance = 1600
From India, Kottayam
From India, Kottayam
Hello John,
If the salary is above Rs.15000/- there's no compulsion that they should be subjected to EPF subscription and hence their 'take home (net) salary' could be higher. I strongly advocate everyone should contribute to EPF a/c which also tagged on to EPS irrespective of whether or not <> Rs.15k. Also the purpose of withdrawing HRA won't be necessary. I would request you to go thru' the recent judgment of the SC dt.28.2.2019 which has amplified what are all components of salary would account for EPF recovery (pl.see this attached). Considering this, camouflaging in any name of allw.might not work.
Similarly, I would ask you to keep the pattern of salary as it is, because HRA is an important aspect in the salary structure and therefore any decision taken to remove this might pose problems when the taxable income of employees crosses the limit in future as it might affect tax planning of employees. If necessary you may consider reducing the HRA %age to 30% or so and also adjust conveyance allow which has now been subsumed in 'Standard Deduction' reintroduced for 2018-19, 19-20.
How about Mediclaim & Accident/Life Ins. policy & pension contribution which assumes greater importance nowadays. These are social benefit measures which are essential in times of need though might not help the 'take home pay'.
From India, Bangalore
If the salary is above Rs.15000/- there's no compulsion that they should be subjected to EPF subscription and hence their 'take home (net) salary' could be higher. I strongly advocate everyone should contribute to EPF a/c which also tagged on to EPS irrespective of whether or not <> Rs.15k. Also the purpose of withdrawing HRA won't be necessary. I would request you to go thru' the recent judgment of the SC dt.28.2.2019 which has amplified what are all components of salary would account for EPF recovery (pl.see this attached). Considering this, camouflaging in any name of allw.might not work.
Similarly, I would ask you to keep the pattern of salary as it is, because HRA is an important aspect in the salary structure and therefore any decision taken to remove this might pose problems when the taxable income of employees crosses the limit in future as it might affect tax planning of employees. If necessary you may consider reducing the HRA %age to 30% or so and also adjust conveyance allow which has now been subsumed in 'Standard Deduction' reintroduced for 2018-19, 19-20.
How about Mediclaim & Accident/Life Ins. policy & pension contribution which assumes greater importance nowadays. These are social benefit measures which are essential in times of need though might not help the 'take home pay'.
From India, Bangalore
> If the salary is above Rs.15000/- there's no compulsion that they should be subjected to EPF subscription and hence their 'take home (net) salary' could be higher.
I did some more research on this online. But everywhere I am seeing that the PF wage (which excludes HRA) is used for determining whether PF enrolment is mandatory or not.
The intention here is not to reduce the PF wage, but to increase it so that PF wage is above 15k. Since the salary here is between 15000 - 20000, the tax benefit of HRA is not attractive for them.
https://www.hinote.in/calculate-pf-o...-of-pay-part-i
We already have group policies for Mediclaim and temporary disablement.
From India, Kottayam
I did some more research on this online. But everywhere I am seeing that the PF wage (which excludes HRA) is used for determining whether PF enrolment is mandatory or not.
The intention here is not to reduce the PF wage, but to increase it so that PF wage is above 15k. Since the salary here is between 15000 - 20000, the tax benefit of HRA is not attractive for them.
https://www.hinote.in/calculate-pf-o...-of-pay-part-i
We already have group policies for Mediclaim and temporary disablement.
From India, Kottayam
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Clubbing of allowances with basic pay under PF Act.pdf
Basic Pay for EPF Contribution-re duction not permissible.doc x