Salary Breakup Structuring
Optimize Payroll. Maximize Take-Home. Ensure Compliance.
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What is Salary Structuring
Salary structuring is the process of organizing an employee’s total compensation (CTC) into various components like basic salary, allowances, perquisites, and statutory deductions. A well-planned structure ensures tax efficiency, compliance, and employee satisfaction by offering clarity and flexibility.
Why Salary Structuring is Important
A company may increase its authorized capital for several reasons
Tax Savings
Optimize components like HRA, LTA, and reimbursements to reduce taxable income
Legal Compliance
Align with EPF, ESI, minimum wage, gratuity, and labor law norms
Employee Retention
Structured salary builds trust, improves satisfaction, and reduces attrition
Clear Financial Planning
Easier for employees to plan EMIs, loans, and investments
Cost Control for Employers
Maximize compensation value without increasing CTC
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Components of a Salary Structure
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| Component | Description | Taxability |
|---|---|---|
| Basic Salary | Core component of salary; forms the base for other calculations. | Fully taxable |
| House Rent Allowance (HRA) | Given to employees living in rented accommodation. | Partially exempt under Section 10(13A) |
| House Rent Allowance (HRA) | Given to employees living in rented accommodation. | Partially exempt under Section 10(13A) |
| Dearness Allowance (DA) | Paid to offset inflation; common in government and PSU jobs. | Fully taxable |
| Conveyance Allowance | For commuting between home and work. | Exempt up to ₹1,600/month |
| Medical Allowance / Reimbursement | For medical expenses. | Tax-free up to ₹15,000/year (if structured as reimbursement) |
| Special Allowance | Balance component after allocating fixed heads. | Fully taxable |
| Leave Travel Allowance (LTA) | For travel expenses while on leave in India. | Exempt twice in a block of 4 years (conditions apply) |
| Bonus / Performance Incentive | Based on employee performance or company profits. | Fully taxable |
| Provident Fund (PF) | Employer’s contribution to retirement benefits. | Tax-free up to 12% of basic salary |
| Gratuity | Long-term benefit after 5 years of service. | Exempt up to ₹20 lakh (on retirement/resignation) |
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What is CTC? And How is It Different from Take-Home Pay
Cost to Company (CTC) = Gross Salary + Employer Contributions + Benefits
However, CTC is not your in-hand salary. Deductions like:
- Employee PF
- TDS
- Professional Tax
- ESI (if applicable)
…are subtracted before the final take-home is paid.
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Sample Salary Breakup – ₹10,00,000 CTC
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| Component | Annual (₹) | Monthly (₹) |
|---|---|---|
| Basic Salary | 4,00,000 | 33,333 |
| HRA | 1,60,000 | 13,333 |
| Conveyance | 19,200 | 1,600 |
| Medical | 15,000 | 1,250 |
| Special Allowance | 2,46,400 | 20,533 |
| Employer PF (12% of Basic) | 48,000 | 4,000 |
| Total CTC | 10,00,000 | 83,333 |
Note: Employee deductions (EPF, PT, TDS) will affect the in-hand amount.
Statutory Deductions to Be Aware Of
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| Deduction | Rate | Applicability |
|---|---|---|
| Employee PF | 12% of Basic | Mandatory if salary < ₹15,000 (or voluntary) |
| ESI | 0.75% of gross salary | If gross ≤ ₹21,000/month |
| Professional Tax | Varies by State | Mandatory deduction |
| TDS | Based on income & regime | Monthly deduction if taxable income |
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