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Salary structure query

prasad (manager) (171 Points)

27 October 2011

Dear All,

Pls. clarify the following:

For our employees we're planning to provide following salary structure - Basic 2800, HRA 1400, Conveyance 800, Medical Reimbursement 1250, Special Allowance 1617 and Company's ESI contribution 133. So, total Gross Salary will be INR8,000/month.

I would like to know whether the above structure would be fine or do we need to add any other mandatory items as per gov. policy. Ours is registered private limited company and we're just 5 employees and hence, we won't deduct PF. Is it fine if we provide Medical Reimbursement option for the employees or is there any limitation? How it is different from Medical Allowance? For ESI's calculation we used 4.75% of Basic, is it fine?

with rgds,

Prasad

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3 Replies

Prasanna Nareshchandra Pathak (DIRECTOR) (26 Points)
Replied 27 October 2011

DEAR PRASAD,

SINCE YOUR COMPANY IS HAVING ONLY 5 EMPLOYEES ESI AND PF WILL NOT APPLY TO YOUR

COMPANY.

PF WILL APPLY IF NUMBER OF EMPLOYEES ON COMPANY ROLL EXCEEDS 20

IT IS PAYABALE ON BASIC SALARY AND SPECIAL ALLOWANCE ( DECLARED BY GOVT)

THE BASIC SALARY SHOULD NOT BE LEES THAN DECLARED BY GOVT FOR PARTICULAR TYPE OF INDUSTRY.

PLEASE LOCATE YOUR INDUSTRY IN MINIMUM WAGES ACT AND PAY MINIMUM BASIS SALARY AS PER GOVT RULE IT IS ALWAYS BASED ON SKILL LEVAL AND ZONE OF YOUR INDUSTRY

ESI WILL APPLY IF NUMBER OF EMPLOYEES ON COMPANY ROLL EXCEEDS 10.IT IS PAYABLE IN CASE SALARY/WAGES UPTO RS.15,000 .IT IS PAYABLE ON GROSS WAGES

ADDITIONAL PAYMENT OF OVERTIME AND OTHER EARNINGS LIKE INCENTIVE,PRODUCTION BONUS, PROFIT SHARE ETC WILL ALSO BE COVERED FOR PAYMENT OF ESI.

PROFESSIONAL TAX WILL APPLY AS PER GOVT RULE.

YOU MAY HAVE SALARY STRUCTUE OF YOUR CHOICE HOWEVER THE REQUIREMENTS OF MINIMUM WAGES SHOULD BE FULFILLED FIRST TO COVER STATUTORY LIABILITY.

-P.N.PATHAK.

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prasad (manager) (171 Points)
Replied 27 October 2011

Dear Pathak Sir,

Thank you very much for your reply. Now, I came to know that ESI also not applicable for our company. I would like to know whether Medical Reimbursment can be applicable to our employees. The reason that I'm asking this question is, this Medical Reimbursment is tax exempted. Our nature of business is Software Development, Manpower consulting and Corporate training. I believe Basic salary of 2800 and Gross Salary of 8000 would be as per minimum wages act in Karnataka, where our office has a branch and even in AP, where our office is registered. Kindly clarify. Thanks in advance.

with rgds,

Prasad

santosh (consultant) (27 Points)
Replied 17 February 2012

My company has a salary structure, where the basic is a paltry 27% of the gross, where as HRA received is higher than this component. The effect is that even though we are receiving higher HRA we are not able to save tax on this. The componenet 40% of basic falls below HRA received amount and hence picked as deduction from taable income. When I talk to finance depeartment, they say the change in salary structure will have a impact on their (employer) tax out go. Through the experts here I would like to know what is the implication of tax structure on the tax liability of the employer/company? As far as I know raising the basic as a componenet of gross should not draw any FBT as it is not fringe benefit (correct me if I am wrong). Apart from FBT what other tax heads should be considered in this context? If I get sound response I will definitely engage my employer on this issue :).