The Companies allow Employees to design Salary Structure according to their needs. It will give the broad components to decide the Structure of Salary.
What is Salary Structure | Salary Structure Design?
It is basically components under which the whole payment is divided depending on the Tax Planning of each employee.
The Companies provide the Basic Salary and the balance will be allowed to opt from the given components. It is called a Basket of Allowances (BOA).
The Basic salary is always a Fixed component and BOA will be offered to employees to opt depending on their tax planning.
The Provident Fund is calculated on the Basic Salary.
Salary Structure Design | Component of Salary Structure :
- Basic Salary – It is 40% – 50% of the Salary offered to employees.
- Dearness Allowance (DA) – Usually it is included in the Basic Salary
Basket of Allowances (BOA) – Employees are allowed to opt from these components. These components are usually as below.
- House Rent Allowance (HRA) – This has opted when an employee is staying in Rented premises. If an employee is staying in the self-occupied property, this option is not suitable.
- Conveyance Allowance – This has opted for Tax saving purposes for the employee traveling to the office in his/her own vehicle.
- Leave Travel Allowance (LTA) – This is also for the purpose of Tax savings.
- Academic Pursuit – This is for an employee, who is taking any professional course/study. Because the Tax benefit is associated with this expense.
- Other Taxable allowances – viz. Children’s education allowance, children’s hostel allowance etc.
To get the Income Tax benefit in the above allowances, the employee must opt for the allowances and the company must pay and show the same in the Salary Slip / Pay Slip of an employee.
Click here to read on How to Negotiate the Salary.