Dear All,
I have recently joined a manufacturing company as an HR Executive. This company is almost 50 years old. We are still following the conventional working style and old policies.
In the present salary structure of our company, Basic is 70-75% of the total Gross Salary. Apart from basic, there are only 2 components: HRA and Conveyance. Most of the employees, especially those falling in higher salary brackets, where basic is almost 60 to 80 K, are really complaining and requesting to change this structure and make it more employee-friendly so that they can save some tax amounts.
I would be really thankful to all of you if you can give your valuable inputs on this and suggest to me a good salary structure that will be best for both the employees and the employer.
Thanks,
Preeti :)
From India, Mumbai
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I have recently joined a manufacturing company as an HR Executive. This company is almost 50 years old. We are still following the conventional working style and old policies.
In the present salary structure of our company, Basic is 70-75% of the total Gross Salary. Apart from basic, there are only 2 components: HRA and Conveyance. Most of the employees, especially those falling in higher salary brackets, where basic is almost 60 to 80 K, are really complaining and requesting to change this structure and make it more employee-friendly so that they can save some tax amounts.
I would be really thankful to all of you if you can give your valuable inputs on this and suggest to me a good salary structure that will be best for both the employees and the employer.
Thanks,
Preeti :)
From India, Mumbai
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I am facing this issue too and thinking about suggesting management to change the pay structure. One way is to name the allowances in such a way that they won't attract tax. For example, Uniform Allowance (also applicable for service industry) - claimed against the tailor/clothing shopping bills - is tax-free up to a certain extent.
Once I initiate the work in this direction, I'll keep you all posted. Meanwhile, I request other members to pitch in and advise us.
Warm regards,
Nikhil
From India, Mumbai
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14Once I initiate the work in this direction, I'll keep you all posted. Meanwhile, I request other members to pitch in and advise us.
Warm regards,
Nikhil
From India, Mumbai
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Friend!
Well, you can break down the gross salary into the following components:
- Basic
- HRA
- Conveyance (up to 800 pm is tax-free)
- Medical reimbursement (Rs 1250 pm is tax-free)
- All other reimbursements bear FBT (fringe benefit tax), which an employer has to pay. So, you need to convince your management for this extra burden.
- All other allowances also call for tax.
- You can introduce PF for your employees, which would save tax.
Anu 😄 😄
From India, Calcutta
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Well, you can break down the gross salary into the following components:
- Basic
- HRA
- Conveyance (up to 800 pm is tax-free)
- Medical reimbursement (Rs 1250 pm is tax-free)
- All other reimbursements bear FBT (fringe benefit tax), which an employer has to pay. So, you need to convince your management for this extra burden.
- All other allowances also call for tax.
- You can introduce PF for your employees, which would save tax.
Anu 😄 😄
From India, Calcutta
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Thank you very much. We have PF in our salary structure. I request you to suggest whether the current salary structure is more employee-friendly where the basic is almost 75% of the total salary. Also, please let me know what the benefits are of having this type of structure.
Thank you all for your support.
Regards,
Preeti
From India, Mumbai
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Thank you all for your support.
Regards,
Preeti
From India, Mumbai
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Hi,
Other than Basic and HRA, I think you can include Attire allowance, Uniform allowance, Books and periodicals, CCA, Medical reimbursement, Telephone reimbursement, LTA, Drivers Salary, Car rental Allowance, etc., in the salary breakups and thus save from the tax.
Regards,
Sinju
From India
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Other than Basic and HRA, I think you can include Attire allowance, Uniform allowance, Books and periodicals, CCA, Medical reimbursement, Telephone reimbursement, LTA, Drivers Salary, Car rental Allowance, etc., in the salary breakups and thus save from the tax.
Regards,
Sinju
From India
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Hi all,
Well, apart from conveyance and medical benefits, you can include LTA in your salary breakdown. LTA (Leave Travel Allowance) is tax-exempted twice in a block of four years as per the Income Tax laws.
Additionally, you can provide Sodexo lunch coupons every month, which are also tax-exempted. These coupons can be used for grocery shopping and at many restaurants. Previously, the limit was set at 1800 per month, but I have heard that it has now been made unlimited.
I hope this information helps you all in creating a more employee-friendly salary structure.
From Germany
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Well, apart from conveyance and medical benefits, you can include LTA in your salary breakdown. LTA (Leave Travel Allowance) is tax-exempted twice in a block of four years as per the Income Tax laws.
Additionally, you can provide Sodexo lunch coupons every month, which are also tax-exempted. These coupons can be used for grocery shopping and at many restaurants. Previously, the limit was set at 1800 per month, but I have heard that it has now been made unlimited.
I hope this information helps you all in creating a more employee-friendly salary structure.
From Germany
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hi, OTHER THAN HRA, TRAVEL ALLOWANCE, PF, LTA,MEDIC CLAIM, SODEXHO PASS, U CAN HAVE DAILIES MAGAZINES,TELEPHONE,SCHOOL FEE FOR CHILDREN,RENT ETC. NEERAJA
From India, Madras
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From India, Madras
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Hi,
One more suggestion: since all fringe benefits carry tax liability for the employer, you can suggest to management to reduce the basic amount and compensate the difference as 'special allowance' or 'executive allowance'. This will help the employer pay a lesser amount for PF (employer contribution), which is 12% of the basic.
Regards,
Parul
From India, Delhi
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One more suggestion: since all fringe benefits carry tax liability for the employer, you can suggest to management to reduce the basic amount and compensate the difference as 'special allowance' or 'executive allowance'. This will help the employer pay a lesser amount for PF (employer contribution), which is 12% of the basic.
Regards,
Parul
From India, Delhi
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Hi Parul,
I have one doubt. How does it affect the employer by reducing the basic pay? As the employer's contribution to PF is a part of the CTC, how does it matter whether the PF contribution is less or more? Does it have an impact on the tax liability of the employer?
I would really appreciate it if you could please clarify my doubt.
Regards,
Simran
From Germany
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I have one doubt. How does it affect the employer by reducing the basic pay? As the employer's contribution to PF is a part of the CTC, how does it matter whether the PF contribution is less or more? Does it have an impact on the tax liability of the employer?
I would really appreciate it if you could please clarify my doubt.
Regards,
Simran
From Germany
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Dear Simran,
All I mean is, if we suggest to management to reduce the basic amount (as we can see that in the thread starter's organization the basic constitutes 70-75% of the CTC, which is not right), then the management can at least save an equal amount of the employer's PF share that it has to bear if it allows higher basic amounts for its staff. Instead, the same amount can be allocated under different heads.
If we look at it from the employee's perspective, he no doubt gets tax benefits on the PF amount, but it's a kind of forced savings that fetches him 8% interest. Whereas, if he invests in mutual funds or bonds, it can provide him a 15-20% return.
Thus, it might be beneficial for both parties.
I hope I have been able to clarify what I meant.
Regards,
Parul
From India, Delhi
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All I mean is, if we suggest to management to reduce the basic amount (as we can see that in the thread starter's organization the basic constitutes 70-75% of the CTC, which is not right), then the management can at least save an equal amount of the employer's PF share that it has to bear if it allows higher basic amounts for its staff. Instead, the same amount can be allocated under different heads.
If we look at it from the employee's perspective, he no doubt gets tax benefits on the PF amount, but it's a kind of forced savings that fetches him 8% interest. Whereas, if he invests in mutual funds or bonds, it can provide him a 15-20% return.
Thus, it might be beneficial for both parties.
I hope I have been able to clarify what I meant.
Regards,
Parul
From India, Delhi
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I understand how it is beneficial to the employee, as the interest rate is very low for PF. But how does the employer benefit, as it is a part of the CTC and anyhow you keep any amount of heads the employer has to pay a certain amount. Thanks for giving the reply so soon.
Regards,
Simran
From Germany
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Regards,
Simran
From Germany
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Thanks to all of you for this kind of support. Well, now it's quite clear that by reducing the basic salary and adding this reduced amount as different allowances in the CTC structure can benefit both the employee and employer. If I am right, then the take-home salary for the employee will increase, and the newly added allowances can help the employee save tax, which is good for the employee. If the employee is happy, then it's good for the employer :)
Thanks,
Preeti :)
From India, Mumbai
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Thanks,
Preeti :)
From India, Mumbai
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Thank you so much Jivan, A really good CTC option sheet. It gives a very clear picture about different components of CTC and also about limits for tax savings. Thanks once again. Preeti Kumar
From India, Mumbai
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From India, Mumbai
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Hi, Sorry for the delayed reply, you can add periodicals like magazine bill to be produced to avoid tax. add telepnone bills etc Neeraja
From India, Madras
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From India, Madras
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Hi Simran, As per your answer, i think that you are from Lifestyle International Pvt. Ltd. employee...
From India, Lucknow
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From India, Lucknow
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Hello,
Here is the salary structure which goes in employees' favor:
- House Rent Allowance (HRA)
- Travel Allowance (TA) [800 pm]
- PF (12% of basic)
- Leave Travel Allowance (LTA)
- Medical Claim
- Medical Allowance
Employees receive this every month, and at the time of tax deduction, employees can show receipts for LTA (train tickets), HRA, and Medical Allowance. For TA, if it is 800 per month, then employees don't have to pay tax on it.
From India, Bangalore
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Here is the salary structure which goes in employees' favor:
- House Rent Allowance (HRA)
- Travel Allowance (TA) [800 pm]
- PF (12% of basic)
- Leave Travel Allowance (LTA)
- Medical Claim
- Medical Allowance
Employees receive this every month, and at the time of tax deduction, employees can show receipts for LTA (train tickets), HRA, and Medical Allowance. For TA, if it is 800 per month, then employees don't have to pay tax on it.
From India, Bangalore
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Hi Simran and Parul,
There are many ways to define salary breaks, and most of them are beneficial for tax savings. However, there is no best method for avoiding taxes. Instead, it is always advisable to suggest that employees invest up to Rs. 1,00,000 every year.
Regarding the salary break, one of the better methods can be described as follows:
a. Basic - 30% to 50% of gross salary (ideally around the 40% mark)
b. HRA - 40% of basic salary
c. Conveyance - Rs. 800 per month (max. exempted amount)
d. Medical - Rs. 1250 per month (max. exempted amount)
Other allowances - Difference between gross salary and (a+b+c+d)
You can, of course, divide the salary into several other categories, but doing so may incur FBT for the employer. There is also the option of providing dearness allowance or cost of living allowance, but these are not tax-exempt to the best of my knowledge. Additionally, they are generally not preferable for private companies because it would then require monitoring the applicable DA index for your city and adjusting salaries monthly accordingly.
Regards,
Gaurang Shah
From India, Ahmadabad
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There are many ways to define salary breaks, and most of them are beneficial for tax savings. However, there is no best method for avoiding taxes. Instead, it is always advisable to suggest that employees invest up to Rs. 1,00,000 every year.
Regarding the salary break, one of the better methods can be described as follows:
a. Basic - 30% to 50% of gross salary (ideally around the 40% mark)
b. HRA - 40% of basic salary
c. Conveyance - Rs. 800 per month (max. exempted amount)
d. Medical - Rs. 1250 per month (max. exempted amount)
Other allowances - Difference between gross salary and (a+b+c+d)
You can, of course, divide the salary into several other categories, but doing so may incur FBT for the employer. There is also the option of providing dearness allowance or cost of living allowance, but these are not tax-exempt to the best of my knowledge. Additionally, they are generally not preferable for private companies because it would then require monitoring the applicable DA index for your city and adjusting salaries monthly accordingly.
Regards,
Gaurang Shah
From India, Ahmadabad
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Three main points for an ideal salary structure are:
- Be tax efficient and give employees the opportunity to save as much tax as possible.
- Keep the employer's liability to a minimum.
- Compliance norms like PF and Minimum wages should be kept in mind.
I am an HR manager for an upcoming startup and I am required to structure salaries. I referred to the article below because it explains the components of a salary and provides a downloadable salary calculator.
[What should you consider for the perfect performance appraisal?](http://quikchex.in/salary-structures-india-need-know/)
This should really help you out.
From India, Mumbai
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- Be tax efficient and give employees the opportunity to save as much tax as possible.
- Keep the employer's liability to a minimum.
- Compliance norms like PF and Minimum wages should be kept in mind.
I am an HR manager for an upcoming startup and I am required to structure salaries. I referred to the article below because it explains the components of a salary and provides a downloadable salary calculator.
[What should you consider for the perfect performance appraisal?](http://quikchex.in/salary-structures-india-need-know/)
This should really help you out.
From India, Mumbai
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EMPLOYEE SALARY INCOME TAX CALCULATION.xls x
Employee Benefits.doc