Basic Salary component %age in Total Salary

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varun gupta (Querist)
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13 June 2009 Has any Income tax rule or any other act prescribed that out of total Salary of an employee how much amt in terms of %age should necessasrily be Basic Salary?

CA CS CMA Srinivasan N

CA CS CMA Srinivasan N (Expert)
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13 June 2009 Hi
There is rule restricting basic..

But, very generally, you could follow this :

Basic : 30 - 35% of CTC
HRA : 50% of Basic
DA : Regulated by Govt. notifications (nominal amounts)
CCA : Is normally a filler on negotiated salary (put the balance amount in
this). Otherwise, 30% of CTC
Gratuity : Is statutory (consider 4.81%)
Superannuation : 15% - 27% of basic (27% if there is no PF)
Leave Encashment : Taxable under provision of IT Act.

Tax deduction is based on various things like HRA claim (least of the 3 conditions under the IT Act - could also be non-taxable if claimed properly), investments done by employee, attraction of 80C/cca, (basic, cca fully taxed based on IT slabs), etc.

The above comp. structure can be tweaked or more components added based on the Co's requirements. That needs a discussion.....

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varun gupta

varun gupta (Querist)
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13 June 2009 Hi,

Agreed that we can follow this but i wants to know that whether some any act prescribes any minimum or maximum limit upto which Basic salary shd form component in total CTC? Furhter, i would like to know that how shd a company calculate its Gratuity Provision liability at year end?

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M Prabhakar Menon

M Prabhakar Menon (Expert)
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14 June 2009 No act answers your question, conventions followed by the members of various trade associations like ASSOCHAM, FICCI etc which release the cost of living /monthly price index for their members to fix the periodical DA/VDA rates, you can contact the body to which your client/institution is a member for clarity.

Parveen Bansal

Parveen Bansal (Expert)
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16 June 2009 There is no rule either in income tax act or any other ,which states that so much % should be basic.

Maximization of tax benefits to employee, minimization of costs to employer and requirements of HR to tie up level with basics of salery to enable convient handling of large number of employees are some of the key drivers for fixing basics.