Dear Pradip, Keep HRA 40% for non metro and 50% for metro for the purpose of exemption under Income Tax act.
From India, Mumbai
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429From India, Mumbai
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Ravi, For Income Tax purposes - yes, the 40% or 50% rule will apply. But, if HRA is say 100% of Basic, would it be excluded from PF computation.
From India, Gurgaon
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From India, Gurgaon
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There is no such rule that you can keep the HRA at 40 or 50% of Basic. Even under Income Tax, we have different situations for exemption, and it is not a flat 40 or 50% of the basic wage. In the case of employees who reside in their own house, how does it work? All that you have to note is the salary is the amount agreed upon by the employee to do a certain work, and it is that salary which is taken into consideration when he is absent without pay. It is also the salary that is paid if he is on leave with pay. As such, the gross salary is the salary that should qualify for PF, subject to the ceiling which, at the present rate, is Rs 15,000. After all, it is a matter of Rs 1,800, and I don't understand why the employers are again bifurcating this amount and showing a very small amount as basic wages and a huge amount as HRA. Is it that people work just to pay rent?
From India, Kannur
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From India, Kannur
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I guess people want to keep Basic low as it has Gratuity implication.
From India, Gurgaon
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From India, Gurgaon
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Under the Payment of Gratuity Act, the meaning of Salary is the same, and I am sure the next battle will be for that. Many establishments now provide their gratuity fund based on the basic salary of the employees. But under the Payment of Gratuity Act, wages mean all emoluments which an employee earns while on duty or on leave. The same principle that I have explained in the previous post can be applied here as well. If the wages paid for your paid leave or the wages deducted for your unpaid leave are based on gross wages, this is the wages as per agreement, and there cannot be any dilution in it. This should be the base for the calculation of Gratuity also.
From India, Kannur
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From India, Kannur
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Dear Madhu Sir, Can you please share different situations for claiming exemption under HRA (please mention the section) for our knowledge.
From India, Mumbai
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From India, Mumbai
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HRA is paid only to persons who work for us in the location but have their own house in some other place. When you hire a person, there will be an understanding that they have to stay in the location where they have to work. In order to make them available in the location we offer, IN ADDITION TO SALARY, an amount with which they can take a house on lease. This is called HRA. Depending on the category of employees, you can have different slabs of HRA. It can be a dormitory kind of arrangement with a common bathroom, etc., the rent of which is paid by the employer himself, in the case of workers; it can be flats in the case of middle-level employees or furnished villas for others. The cost of rent can be added to your CTC but not in GROSS SALARY. Obviously, for local employees or people from the same locality, this will not be available. That is not an issue either. Why do we pay to some employees? Because we need them to be available at the place of operation.
In the above arrangement, if an employee could not come to the office for, say, four days, due to some reasons and since they had no leave to their credit, the days were marked as Leave without Pay. Then they will get the HRA in full but four days' salary on the basis of gross salary will only be deducted. In the case of HRA as a component of gross salary, they will not get it. The first case recognizes that they are still in the locality though they could not come to the office. As such, they should pay rent to the landlord in full even though they did not go to the office for a few days (for the landlord whether they go to the office or not is not at all an issue). When it is a part of the gross salary, they will lose it for four days. If it is lost, there should be a reason. The reason is that they did not attend their office, and as per the terms and conditions of employment, HRA is a part of gross wages and that will be proportionally deducted when they are absent.
When HRA is paid over and above salary, that can be exempted from PF. But when it is included in the gross salary, it should be considered as part of PF qualifying salary.
From India, Kannur
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In the above arrangement, if an employee could not come to the office for, say, four days, due to some reasons and since they had no leave to their credit, the days were marked as Leave without Pay. Then they will get the HRA in full but four days' salary on the basis of gross salary will only be deducted. In the case of HRA as a component of gross salary, they will not get it. The first case recognizes that they are still in the locality though they could not come to the office. As such, they should pay rent to the landlord in full even though they did not go to the office for a few days (for the landlord whether they go to the office or not is not at all an issue). When it is a part of the gross salary, they will lose it for four days. If it is lost, there should be a reason. The reason is that they did not attend their office, and as per the terms and conditions of employment, HRA is a part of gross wages and that will be proportionally deducted when they are absent.
When HRA is paid over and above salary, that can be exempted from PF. But when it is included in the gross salary, it should be considered as part of PF qualifying salary.
From India, Kannur
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Dear all,
I have a query related to the new PF ruling by the Supreme Court. In our company, we have allowances such as basic+DA, HRA, conveyance, and medical allowance. However, only 50% of employees receive all of the above components, while the remaining 50% of employees receive only Basic+DA and HRA.
According to the Supreme Court rule, special allowances should be included in the PF calculation. My query is, in the above case, should the new ruling be followed considering that all components are not universally paid to all employees?
Please guide me on this matter.
Regards,
Priya
From India, Mumbai
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I have a query related to the new PF ruling by the Supreme Court. In our company, we have allowances such as basic+DA, HRA, conveyance, and medical allowance. However, only 50% of employees receive all of the above components, while the remaining 50% of employees receive only Basic+DA and HRA.
According to the Supreme Court rule, special allowances should be included in the PF calculation. My query is, in the above case, should the new ruling be followed considering that all components are not universally paid to all employees?
Please guide me on this matter.
Regards,
Priya
From India, Mumbai
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The Supreme Court has never said that Special Allowance should be part of PF qualifying wages, but the court has only said that special allowance paid to all employees should be part of wages. If any allowance is paid to a particular category of employees depending on the risk involved or special skill required to do that work, that can be excluded from wages. There can be cash handling allowance for those who handle cash, night bata for people who work night shifts, and these are special allowances. Since these are not paid to all employees, you can exclude them from PF qualifying wages.
If your Basic + DA part is reasonably good, then there will not be any problem. The problem comes only when the PF qualifying salary is very low and you don't even consider dearness allowance in the salary. Obviously, a salary much lower than the statutory minimum will be under scrutiny by the EPF Authorities, even though they cannot direct the employers to pay as per minimum wages.
Moreover, if the PF qualifying salary is more than Rs 15,000, nothing said in the Court ruling will apply.
From India, Kannur
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If your Basic + DA part is reasonably good, then there will not be any problem. The problem comes only when the PF qualifying salary is very low and you don't even consider dearness allowance in the salary. Obviously, a salary much lower than the statutory minimum will be under scrutiny by the EPF Authorities, even though they cannot direct the employers to pay as per minimum wages.
Moreover, if the PF qualifying salary is more than Rs 15,000, nothing said in the Court ruling will apply.
From India, Kannur
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Dear HR fraternity,
Due to amendments/judgments on wage components, we wish to restructure the wage structure to benefit from PF & ESI exemption, which are as follows:
Wage/Salary Components
---------------------------------
- Basic
- HRA
- Washing Allowance (Max-1000)
We propose to restructure the total gross salary into the above three components by fixing 61%, 35%, and 4% respectively. Also, we seek clarification/best advice on other allowances such as Attendance Bonus, Night Shift Allowance, Overtime wages, etc., in view of PF judgment/ESI amendment.
Regards,
Krishna Kumar
From India, Hyderabad
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Due to amendments/judgments on wage components, we wish to restructure the wage structure to benefit from PF & ESI exemption, which are as follows:
Wage/Salary Components
---------------------------------
- Basic
- HRA
- Washing Allowance (Max-1000)
We propose to restructure the total gross salary into the above three components by fixing 61%, 35%, and 4% respectively. Also, we seek clarification/best advice on other allowances such as Attendance Bonus, Night Shift Allowance, Overtime wages, etc., in view of PF judgment/ESI amendment.
Regards,
Krishna Kumar
From India, Hyderabad
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