Salary and Reimbursement Structure in Inida

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What is Salary?

A Salary is a fixed amount of compensation paid to an employee by an employer in return for work performed. Salary is commonly paid as monthly payments in India. The amount to pay is mutually agreed prior to joining organisation and them documented in the employment contract.

Every month net salary amount is paid to employees post statutory deduction, like Provident fund, ESIC, Income Tax, Professional Tax, and LWF. This deduction is subject to the applicability of the law to the employer.

What is CTC?

CTC means Cost-To-Company. The total cost that an employer would incur, on an employee in a year is called CTC. Every month salary and other benefits that the company pays on an employee is actually a cost to the company. CTC package is a term often used by private sector Indian companies while making an offer of employment.

What are the components of CTC and Salary?

CTC contains all taxable, non-taxable, and statutory contribution amounts paid and payable on-behalf of the employee. All the below mentioned are a part of the in-hand salary, and therefore, is the part of the CTC;

Basic, HRA, LTA,Education Allowance, Special Allowance, Telephone/Internet Reimbursement, Car & Petrol Reimbursement, Meal Coupon, Book & Periodicals Reimbursement.

Apart from the above, the statutory contribution and retiral benefit comprises a major part of CTC with which the employee knows how much deduction and benefits will he gets.

On what date should you pay salary to employees?

•Usually, most companies pay salaries on the 30th or 31st of every month, but as per the Code of Wage Act, it should be paid by the 7th of next month if employee strength is up to 1000 and for those above can pay till the 10th of next month.

•To meet the statutory deadline, it is always preferred to pay a salary before the 7th of next month since the salary tax payment deadline is the 7th of next month and thereafter 15th for PF and ESIC.

What points to considered while designing a new CTC?

•An employee’s salary is determined by several parameters like employees' profession, skillsets and years of experience, location of the profession, salary structure.

•The Basic salary amount should be equal or greater than the state minimum wage rate.

•Statutory contribution should be applied based on central and state law which is applicable to the organisation.

•Allocate tax-friendly components which result in an increase in employees monthly take-home salary

•Download PayHR Excel CTC salary calculator : Click here to Download Excel CTC Calculator file

Some of the various components of salaries with applicable statutory limit are as follows

Click on the buttons inside the tab menu:..........Last updated on 30/04/2021

Basic Salary

Type	Monthly Fixed Allowance
About	Basic + DA forms the core of the salary structure. Usually Basic should be 50% of CTC. Some of the other components are dependent on Basic, which is Gratuity, Leave encashment, Overtime, Statutory bonus. Also, the Basic should never be lower than the minimum wage amount. So utmost care should be taken while allocating the Basic component
Limit	50% of CTC
PF Applicable	1. 12% of Basic salary, or 2. If Basic is below Rs.15,000 pm then total up all fixed allowance maximum upto Rs.15,000 Note : As per pf notification dated March' 2019, all fixed allowance expect HRA will form a part of PF contribution upto limit of Rs.15,000 pm (15,000 * 12% = 1,800 pm)

ESIC Applicable	Professional Tax Applicable	LWF Applicable	Gratuity Applicable	Income Tax Applicable
Yes	Yes	Yes	Yes	Fully Taxable

House Rent Allowance(HRA)

Type	Monthly Fixed Allowance
About	1. HRA usually to be set at 40% or 50% of the Basic salary. 2. Salaried individuals, who live in rented houses, can claim the House Rent Allowance (HRA) to lower their taxes – partially or wholly. The allowance is for expenses related to rented accommodation. If you don’t live in rented accommodation, this allowance is fully taxable.
Limit	50% of Basic for Metro City and 40% of Basic for Non-Metro City
Income Tax Applicable	Tax exemption is based on declaration and proof submitted by the employee to his employer

PF Applicable	ESIC Applicable	Professional Tax Applicable	LWF Applicable	Gratuity Applicable
No	Yes	Yes	Yes	No

Leave Travel Allowance(LTA)

Type	Monthly Fixed Allowance
About	Employees can claim an exemption under Income Tax for expenses incurred for traveling when on leave anywhere in India along with dependent family members. Many factors need to be kept in mind before planning the travel for the purpose of claiming LTA exemption. Income tax provision has laid down various rules with respect to claiming exemption of LTA.
Limit	Maximum upto 10% of Basic
Income Tax Applicable	Tax exemption is based on declaration and proof submitted by the employee to his employer

PF Applicable	ESIC Applicable	Professional Tax Applicable	LWF Applicable	Gratuity Applicable
Yes	Yes	Yes	Yes	No

Education Allowance

Type	Monthly Fixed Allowance
About	For some salaried individuals, payment of education or school tuition fees for children can be part of their salary structure for availing tax benefits.
Limit	1. Children’s Education Allowance: Rs.100 per month per child up to a maximum of 2 children. 2. Hostel Expenditure Allowance: Rs.300 per month per child up to a maximum of 2 children.
Income Tax Applicable	Tax exemption is based on declaration and proof submitted by the employee to his employer

PF Applicable	ESIC Applicable	Professional Tax Applicable	LWF Applicable	Gratuity Applicable
Yes	Yes	Yes	Yes	No

Special Allowance(Balance)

Type	Monthly Fixed Allowance
About	Special allowance will remains for allocation of balance remaining surplus after the above-fixed allowance allocation.
Limit	Usually this will be used as balancing component
Income Tax Applicable	Fully Taxable

PF Applicable	ESIC Applicable	Professional Tax Applicable	LWF Applicable	Gratuity Applicable
Yes	Yes	Yes	Yes	No

Fixed Gross Salary

Type	Total of all Fixed Allowance
About	This is the total of all fixed allowance which will be considered for various statutory calculations like, ESIC wage, PT Wage, LWF Wage and Income Tax, etc.
Limit	Sum of all fixed allowances, from Point 1 to 5

Mobile/Internet Reimbursement

Type	Monthly Fixed Reimbursement
About	To avail tax benefit, Employer-based on level or designation provides to the employees a monthly fixed amount, based on which employees will submit proof every month. For any period if a proof is not or partially submitted, then the eligible unclaimed amount will be paid and considered under taxable income.
Limit	Rs.500 to Rs.2,000 per month (only for one mobile or telephone number)
Income Tax Applicable	Tax-free subject to proof submitted and, for balance proof not submitted will be considered for taxation

PF Applicable	ESIC Applicable	Professional Tax Applicable	LWF Applicable	Gratuity Applicable
No	No	No	No	No

Car & Driver Reimbursement

Type	Monthly Fixed Reimbursement
About	To avail tax benefit, Employer-based on level or designation provides to the employees a monthly fixed amount, based on which employees will submit proof every month. For any period if a proof is not or partially submitted, then the eligible unclaimed amount will be paid and considered under taxable income.
Limit	Rs.1,800/- p.m. in case Cubic Capacity of engine is 1.6 litres Rs.2,400 p.m. in case Cubic Capacity more than 1.6 liters If driver appointed than actuals of driver’s salary up to Rs.900 monthly.
Income Tax Applicable	Tax-free subject to proof submitted and, for balance proof not submitted will be considered for taxation

PF Applicable	ESIC Applicable	Professional Tax Applicable	LWF Applicable	Gratuity Applicable
No	No	No	No	No

Meal Coupon

Type	Monthly Fixed Reimbursement
About	Food coupons are nothing but a fixed monthly amount added to employees food wallet account by his employer to have a meal at the employees convenience
Limit	Maximum Rs.2,200 per month
Income Tax Applicable	Tax-free

PF Applicable	ESIC Applicable	Professional Tax Applicable	LWF Applicable	Gratuity Applicable
No	No	No	No	No

Book & Periodicals Reimbursement

Type	Monthly Fixed Reimbursement
About	To avail tax benefit, Employer-based on level or designation provides to the employees a monthly fixed amount, based on which employees will submit proof every month. For any period if a proof is not or partially submitted, then the eligible unclaimed amount will be paid and considered under taxable income.
Limit	Rs.1,000 to Rs.2,000 per month
Income Tax Applicable	Tax-free subject to proof submitted and, for balance proof not submitted will be considered for taxation

PF Applicable	ESIC Applicable	Professional Tax Applicable	LWF Applicable	Gratuity Applicable
No	No	No	No	No

Total Gross Salary

Type	Total of all Fixed Allowance & reimbursement
About	Gross Salary is the total amount of money an employee receives before taxes and statutory deduction
Limit	Sum of Point 1 to 10

PF Employer contribution

Type	Employer Statutory contribution
About	PF is applicable to those Companies where 20 or more employees are working. It is mandatory for employees whose salary is less than Rs.15,000 a month. An employee who was a member of PF in his previous organisation, its mandatory to continue his PF membership. An employee drawing a salary of more than Rs.15,000 a month will have to contribute a minimum PF Rs.1,800 pm.
Limit	1. Employer contribution 12% of Basic, if Basic below Rs.15K then fix this amount to Rs.1,800 pm.(If Gross Salary below 15K then limit to Gross amount) 2. Employer contribution ceiling restriction can be set to Rs.1,800 per month even if employee contribution is above Rs.1,800 per month
Income Tax Applicable	Not Applicable

PF Applicable	ESIC Applicable	Professional Tax Applicable	LWF Applicable	Gratuity Applicable
Not Applciable	Not Applciable	Not Applciable	Not Applciable	Not Applciable

ESIC Employer comtribution

Type	Employer Statutory contribution
About	Wef 1st October 2020, ESIC is applicable for those Companies where 10 or more employees are working. ESIC contribution is mandatory for those employees whose fixed gross salary is up to Rs.21,000 a month. An employee who was a member of ESIC in his previous organisation, can continue his ESIC membership with a new organisation. For more details on ESIC: Click here - ESIC Procedure
Limit	ESIC Employer Contribution will be 3.25% of Fixed Gross Salary
Income Tax Applicable	Not Applicable

Gratuity Contribution

Type	Employer Statutory contribution
About	Gratuity is the amount paid to the employee by the employer for the graceful service of the employee in the establishment. It is paid by the employer to the employee who is working in the establishment for more than 5 years. For more details on Gratuity: Click here - Gratuity Act and online Gratuity Calculator
Limit	Contrubution to set at 4.81% of Basic amount
Income Tax Applicable	Tax exemption is up to Rs.20 Lacs

Statutory Bonus

Type	Employer Statutory contribution
About	The Payment of Bonus Act is applicable to the establishment when twenty or more workers are working. An employee earning a salary up to Rs.21,000 per month is covered under The Payment of Bonus Act. The act applies when the establishment is 5 years old but subject to if booked losses in these years. If there is profit booked during this period then its mandatory for the employer to make the bonus payments from the same year. For more details on Statutory Bonus Act: Click here - Bonus Act and online Bonus Calculator
Limit	8.33 % of Bonus Wage (Basic + DA amount). The maximum qualified Bouns wage is restricted to the applicable State Minimum Wage Act rate.
Income Tax Applicable	This amount will be considered as employee income, but if paid lumpsum as per act then tax-free, but if this amount is paid along with monthly salary then tax is applicable.

PF Applicable	ESIC Applicable	Professional Tax Applicable	LWF Applicable	Gratuity Applicable
Not Applciable	Not Applciable	Not Applciable	Not Applciable	Not Applciable

Total CTC

Type	Total Cost to Company
About	CTC is the sum of all fixed allowance plus all reimbursement plus all statutory employer contributions. CTC stands for Cost to a company. It is the value that the company is spending on a particular employee in a year.
Limit	Sum of ponit no 11 + 12 + 13 + 14 + 15

PF Employee contribution

Type	Employee Statutory contribution
About	Based on point no 12, every employee covered under the PF act will have to contribute his part from his monthly gross salary
Limit	1. Employee contribution 12% of Basic, if Basic below Rs.15K then fix this amount to Rs.1,800 pm. (If Gross Salary below 15K then limit to Gross amount) 2. Employee contribution ceiling restriction can be set to Rs.1,800 per month if basic salary is above 15K
Income Tax Applicable	Employee PF contribution is tax exempted up to Rs.1.5 lacs u/s 80C.

ESIC Employee comtribution

Type	Employee Statutory contribution
About	Based on point no 13, every employee covered under the ESIC act will have to contribute his part from monthly gross salary
Limit	Employee Contribution will be 0.75% of Fixed Gross Salary
Income Tax Applicable	Not Applicable

Professional Tax

Type	Employee Statutory contribution
About	Professional Tax' is a tax amount levied by State Governments in India on salaried employees and professionals, including Chartered Accountants, Lawyers, Doctors, Employers, Director of companies, etc. The Professional Tax rates varies from one state to another, but it has a maximum limit which is capped to Rs 2500/- per year.
Limit	To know more about Profesional Tax and its latest Slab and Rates of different states in India, then visit:Click here for latest Professional Tax Slabs and Rates in India
Income Tax Applicable	Tax benefit upto Rs.2,500 yearly

Net Take Home Salary

Net Take home Salary, is final monthly amount paid to employee

This is the final net salary paid to employees every month post statutory deduction.
*Income Tax deduction should be considered additional based on investment details provided by the employee

Sum of point 11 - 17 -18 - 19
Net Salary = Total Gross Salary - Total of Employee contribution

To know more about Income tax saving guidelines, click here: Income Tax Saving Guidelines for Employee's

Download Excel CTC Calculator

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PayHR EXCEL CTC Salary calculator: