Defining Salary Structure - Part 1

Would you like to know what different parts of your salary mean? Are you just about to change your job and don't know what different parts of your salary slip mean and how to negotiate better? Well let me try to define some terms for you, this is the first part of the series i will be writing on the issue....

Basic Salary - This is the base income. The basic salary is used to calculate several other constituents of the salary. Basic salary is always taxable and hence ideally should not be kept more than 40% of the Cost to Company (CTC) but then keeping it to low may also cause the reduction in other constituents of the salary. Hence a balanced Basic income should be calculated.

House Rent Allowance (HRA) - House Rent allowance is a very crucial part of the salary structure. It is usually 40 - 50% of the basic salary. Out of the HRA received during any financial year, the least of the following is exempt from the income -
1. The actual HRA Received
2. 50% of the basic salary in metros(Mumbai, Chennai, Delhi or Kolkatta) and 40% in other areas.
3. Actual rent paid minus 10% of the basic salary.

Of course also note that the HRA becomes taxable if you do not pay any rent. Also don't forget if the HRA is lower than 40% of the basic, you will lose out on the chance to reduce your tax.

Special allowance (Other allowance etc) - This is the part which makes up for the remainder part of the salary. It is usually not bigger than the basic salary. This is the part which actually cannot be treated as any other constituent of the salary. This part of the salary is usually completely taxable.

I will continue this as a series, so absorb this information for today and the remaining is coming tomorrow. Going for a commercial break.

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Defining Salary Structure - Last Part

Defining Salary Structure - Part 2