Salary Structure in India

Salaries are paid by organizations to their workers in exchange for the services rendered by them. The earnings paid to workers include of variety of different elements, like basic salary, allowance, perquisites, etc.

Salary structure is that the details of the earnings being offered, in terms of the breakup of the various elements constituting the compensation. Any change(s) to the salary structure i.e. among the elements, will have a significant impact on what the employee will, such as the kind of tax exemptions claimed. Knowledge of what makes up the salary earned is crucial since it helps keep the employee informed regarding what proportion goes into forced savings and what kind of tax exemptions to claim.

Components of salary Structure

Some of the elements of the salary structure include:

Basic salary

Basic salary is that the base income of an employee, comprising of 35-50 you look after salary remuneration. it is a fixed quantity that's paid prior to any reductions or will increase because of bonus, overtime or allowances. Basic salary is decided based on the designation of the employee and the industry in which he or she works in. The other components, like allowances, are based on the basic salary. This amount is fully taxable.

Allowances

Allowance is an amount payable to staff throughout the course of their regular job duty. It is partly or absolutely taxable, depending on what type it is. Allowances given and the limits on it will vary from organization to organization, according to their policies.

• Dearness Allowance- Dearness allowance is a certain share of the basic wage paid to staff, aimed toward mitigating the impact of inflation. It is paid by the government to staff of the general public sector and pensioners of the same.
• House Rent Allowance– A house rent allowance is that element of the salary that is paid to workers for meeting the value of renting a home. It offers tax benefits to the staff for the sum that they pay towards their accommodation each year. Salaried people residing in rented homes will claim this exemption and reduce their tax liability.
• Conveyance Allowance- It is also called transport allowance, is a kind of allowance offered by employers to their workers to compensate for their travel expense to and from their residence and workplace. Note - In Union Budget 2018, a standard deduction of Rs. 40,000 has been introduced in position of transport (Rs 19,200) and medical (Rs 15,000) allowances.
• Leave Travel Allowance- Leave travel allowance is eligible for tax exemption. It is offered by employers to their employees to cover the employee's travel expense when he or she is on leave from work. The amount paid as leave allowance is exempt from tax under Section 10(5) of income tax Act, 1961. Leave allowance solely covers domestic travel and also the mode of travel must be air, railway or conveyance.
• Medical Allowance- Medical allowance is a fixed allowance paid to the workers of an corporation to meet their medical expenditure. Note - In Union Budget 2018, a standard deduction of INR 40,000 has been introduced in lieu of transport (Rs 19,200) and medical (INR 15,000) allowances.
• Books and Periodicals Allowance- Books and periodicals allowance is a quite allowance provided to employees for serving to them meet the expenses associated with the purchase of books, periodicals, and newspapers. It is tax-exempt to the extent of actual expenditure incurred towards the acquisition of books and periodicals.

Gratuity

Gratuity is a payment profit paid by employers to those staff who are retiring from the organization. This is only payable to people who have completed five or additional years with the corporate. The gratuity amount is paid in gratitude for the services rendered by the individual throughout the period of employment. According to the Payment of Gratuity Act, 1972, gratuity is calculated as 4.81% of the basic pay. Most companies with a manpower of ten or additional staff come under the Act.

Employee Provident Fund

Employee Provident Fund is a worker benefits scheme where investments are created by each the employer and also the employee monthly. it is a savings platform that aids workers to save a portion of their wage monthly, from that withdrawals may be created following a month from the date of cessation of service or upon retirement. A minimum of 12% of an employee’s basic wage is automatically subtracted and goes to the employee Provident Fund each month. The contributions are maintained by the employees Provident Fund Organization (EPFO).

Professional Tax

Professional tax is a tax levied on the financial gain earned by salaried workers and professionals, as well as chartered accountants, doctors and lawyers, etc. by to the state government. Different states have varied strategies of calculating professional tax. The most quantity that's payable in a year is Rs. 2,500. Employers deduct profession tax at prescribed rates, from the salary paid to workers, and pay it on their behalf to the state government. The revenue collected is used for the employment Guarantee scheme and the Employment Guarantee Fund.

Perquisites

Perquisites also said as fringe benefits, are the advantages that some workers enjoy as a results of their official position. These are usually non-cash advantages given additionally to the cash salary. Some examples of perquisites embrace the provision of a car for personal use, rent-free accommodation, payment of premium on personal accident policy, etc. The value of perquisites gets added to the salary and tax is paid on them by the employee.

ESIC

If a corporation has ten or a lot of workers (20 in case of Maharashtra and Chandigarh) whose gross pay is below Rs. 21,000 per month, then the employer is needed to avail ESIC scheme for such workers. The employer's contributions are going to be 4.75% of gross salary, whereas the employee's contributions are going to be 1.75% of gross salary.