Source | The Economic Times : By Chandralekha Mukerji
You may have had the best package at campus placements, but when you join, your salary would appear less compared to that of your immediate seniors.Why’s that? Because, simply put, your salary structure and your take-home pay are based on what the firm offers with YOU having very little control.
The India government does not recognise the concept of cost-to-company (CTC in HR parlance) in computing wages. Except for statutory heads, such as Employee Provident Fund (EPF), Employees’ State Insurance, gratuity and bonus, where the rules prescribe minimum contributions, there are no set rules on structuring the CTC. The salary break-up is the company’s prerogative. There are broad norms such as the basic pay being 30-40% of the salary and house rent allowance (HRA) being a percentage of the basic. But these are not wrtitten in stone either.
So, what constitutes CTC vary from company to company. All CTC structures include three main components — basic, retiral benefits, allowances and reimbursements — while other components vary. Companies may or may not include variable payouts, such as performance bonus and gratuity in the ‘total target remuneration’. Also benefits given in kind, for instance, house, furniture and car, are in some cases part of the total pay. Some companies include premium paid for group benefits such as health and accident insurance in your CTC. So, the bottomline is check your salary structure to see what you are getting and if needed, customise your CTC.
Restructure basic pay
The basic, probably the biggest chunk of your salary, includes basic pay, HRA and often dearness and special allowance. Apart from HRA, every component is fully taxable. An easy way to reduce tax liability is to cut basic pay and adjust it as perks or long-term benefits. If you have a special allowance component, adjust it as a tax-free component. But you need to weigh the pros and cons. Your HRA (usually 40-50% of the basic) and EPF (12% of the basic) would be directly impacted. Also, if you want to apply for a car or home loan in the short term, you may not want the basic pay to be too low.