Hello Friends!
I am new to this forum and must say, it seems like a very resourceful network for our HR fraternity! I have recently moved in to an HR role from recruitment and am part of an MNC retail organisation setting up operations in India. Would really appreciate if you could share your knowledge and experience on the following areas:
Regards,
Poonam
From Singapore, Singapore
I am new to this forum and must say, it seems like a very resourceful network for our HR fraternity! I have recently moved in to an HR role from recruitment and am part of an MNC retail organisation setting up operations in India. Would really appreciate if you could share your knowledge and experience on the following areas:
- How is base salary calculated? Is there a statutory requirement for arriving at a percentage which is part of the ctc?
- I read on this forum that as per Bombay Chamber of Commerce guidelines, there is a minimum basic that needs to paid for semi skilled / skilled employees. So, does it differ for every state? Is there a uniform basic that can be applicable across India?
- How is HRA computed? Again is there a standard minimum that can be applicable to whole of India?
- How is professional tax computed for employees? In which month is there an excess payout towards PT?
- I did go through the details on Fringe benefits shared by our friends here. But I still have questions like what are the benefits and impacts of fringe benefits and their limits for both employees and employers?
- The reasoning for including and exluding certain fringe benefits by employers? Does this depend on company size / profits / revenue or any other aspects?
- Is there a book that can be referred to structure and freeze on the compensation framework?
- What are the standard terms that should go in to an offer letter and why?
Regards,
Poonam
From Singapore, Singapore
Hi Poonam,
Clarification on some of your points.
1.Basic is generally taken as a % of CTC ( 40%, 50%) as per the policy of your company depending upon the Grades or levels. But ones basic % is fixed it can not be reduced in future. So one needs to be sure for how much % basic to be kept.
2.As per minimum Wages act for specified industries basic differs as per skills and it is diffirent from state to state.
3. Minimum HRA should be 5% of your basic, you can give more also but not less than 5%.
4. Profession Tax is calculated as per the income slabes. It aslo differs from state to state. Maximum PT deducted in Maharashtra is Rs.2500.00 per year which is fully exempt form I.Tax.
5.In the offer letter you can mention the designation, level and CTC. Also if you required to receive any specific documents you can mentioned that. Also the date of joining to be mentioned in the letter and in case if that person dosen't join necessary clause should be mentioned as regards to validity of the offer letter.
I hope some of your queries would have resolved.
Regards,
Harshad
From India, Mumbai
25Clarification on some of your points.
1.Basic is generally taken as a % of CTC ( 40%, 50%) as per the policy of your company depending upon the Grades or levels. But ones basic % is fixed it can not be reduced in future. So one needs to be sure for how much % basic to be kept.
2.As per minimum Wages act for specified industries basic differs as per skills and it is diffirent from state to state.
3. Minimum HRA should be 5% of your basic, you can give more also but not less than 5%.
4. Profession Tax is calculated as per the income slabes. It aslo differs from state to state. Maximum PT deducted in Maharashtra is Rs.2500.00 per year which is fully exempt form I.Tax.
5.In the offer letter you can mention the designation, level and CTC. Also if you required to receive any specific documents you can mentioned that. Also the date of joining to be mentioned in the letter and in case if that person dosen't join necessary clause should be mentioned as regards to validity of the offer letter.
I hope some of your queries would have resolved.
Regards,
Harshad
From India, Mumbai
Thanks a lot Harshad! This should help. Had one mrore query, is mobile phone expenses covered under fringe benefit and is there a tax liability on employees? Thanks! Regards, Poonam
From Singapore, Singapore
From Singapore, Singapore
Hi Poonam, There is no liability on employees towards mobile phone expenses. It comes under FBT. Company will have to pay tax on such expenses. Cheers:icon1: Harshad
From India, Mumbai
From India, Mumbai
Hi Poonam
Harshad has replied to most of the queries, am touching only upon the FBT part.
As per Section 115WA(1), additional income-tax to be paid by an employer in respect of fringe benefit provided or deemed to have been provided to employees.
Fringe Benefit is defined as………. Any privilege, service, facility or amenity, directly or indirectly, provided by an employer to an employee by reason of his employment, or any reimbursement made by an employer directly or indirectly for any purpose, or any free or concessional travel ticket for private journeys, or any contribution by an employer towards an approved superannuation fund.
Logic - There were a lot of components (reimbursements and benefits) which were part of CTC / outside CTC and escaped the tax net (e.g fuel reimbursement, telephone reimbursement, employee welfare expenses, club memberships..). FBT in a way plugs this loop hole by taxing all these components. The tax rates vary and also the rates vary as per the industry. This means that the employer has to bear these additional expenses if provided to the employee. So the logical thing... many companies restructed their salary components and made it FBT free.
But now after 2 years companies are moving back to pre FBT era and again adding these components to the salary structure.. reason, the tax rate is usually 6.67% and the employee enjoys 33 %.. in effect even after paying 6% tax there is still a 27% benefit to the employee.
Some companies are now going to the extent of paying up this 6.67% and providing the full 33% benefit (assuming employee is in the highest tax bracket).
From Philippines
Harshad has replied to most of the queries, am touching only upon the FBT part.
As per Section 115WA(1), additional income-tax to be paid by an employer in respect of fringe benefit provided or deemed to have been provided to employees.
Fringe Benefit is defined as………. Any privilege, service, facility or amenity, directly or indirectly, provided by an employer to an employee by reason of his employment, or any reimbursement made by an employer directly or indirectly for any purpose, or any free or concessional travel ticket for private journeys, or any contribution by an employer towards an approved superannuation fund.
Logic - There were a lot of components (reimbursements and benefits) which were part of CTC / outside CTC and escaped the tax net (e.g fuel reimbursement, telephone reimbursement, employee welfare expenses, club memberships..). FBT in a way plugs this loop hole by taxing all these components. The tax rates vary and also the rates vary as per the industry. This means that the employer has to bear these additional expenses if provided to the employee. So the logical thing... many companies restructed their salary components and made it FBT free.
But now after 2 years companies are moving back to pre FBT era and again adding these components to the salary structure.. reason, the tax rate is usually 6.67% and the employee enjoys 33 %.. in effect even after paying 6% tax there is still a 27% benefit to the employee.
Some companies are now going to the extent of paying up this 6.67% and providing the full 33% benefit (assuming employee is in the highest tax bracket).
From Philippines
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1. FLOW CHART OF SALARY STRUCTURING AND GRADATION.xls