Categories | Explanation |
Monthly Taxable | All the heads which are taxable are a part of this category – for
example Basic, Special Pay |
Monthly Tax Free | All the heads under which the Government allows a tax rebate fall
in this category – for example HRA, Children Education |
Annual Taxable | Components like Performance incentive, Annual Bonus are grouped here.
These are completely taxable |
Annual Tax Free | Components like LTA which are exempt from tax and can be given once
in the year are grouped here |
Monthly Tax Free Benefits | Under this category benefits which are a part of salary but not paid
in cash can be modeled. For example if companies do not have an in-house
canteen then employees can be provided with tax-free meal coupons |
Components of salary which are claimed as reimbursements through
vouchers submitted by the employee with supporting receipts | |
CTC Heads | CTC heads can be included as a part
of the employee's salary. These are not paid directly to the employee during
the monthly payroll but are either deposited to the Government like
Employer's PF component or are paid when he leaves the company like
Gratuity |
Deductions | All planned deductions from salary like PF (Employee contribution),
Tax Deducted at Source, VPF, Loan recovery, Leave Without Pay etc
are grouped in this category. Adhoc deductions can be made during
the monthly payroll run. TDS is not shown in salary structure |
Salary templates can be created and used across multiple employees to ensure consistency
in salary structure. Refer to Managing Templates section in Creating salary structure in bulk article.
Tax free Components
Government allows for tax free salary in certain heads – these are all a part
of the Monthly or Annual Tax Free Salary category. The limit of tax deduction
allowed is linked to either some other selections (number of children, actual
rent paid, city type) or the amount which is claimed subject to a maximum limit
(Entertainment allowance).
Once a tax free head is selected in the salary structure and the right configuration
is maintained the tax calculation is done automatically.
Please refer to the article on Understanding taxability of salary components for more details
Sample Salary Structure
| Category | Head | Basis | Attribute | Amount |
| Monthly Taxable | Basic | % of Gross | 40% | 400,000 |
| Monthly Taxable | Special Pay | Auto | 12% | 120,000 |
| Monthly Taxable | Project Allowance | Variable | NA | |
| Monthly Tax free | HRA | % of Gross | 20% | 200,000 |
| Monthly Tax free | Uniform Maintenance | Variable | 15,000 | |
| Annual Taxable | Performance Bonus | Fixed | Month = Mar | 75,000 |
| Reimbursement | Petrol Expense | Fixed | Frequency=Quarterly | 80,000 |
| Reimbursement | Leave Travel Allowance | Fixed | Frequency=Annual | 110,000 |
| Gross Total | 10,00,000 | |||
| Cost to Company Heads | ||||
| Employer’s contribution to PF | 15,660 | |||
| Gratuity | 12,900 | |||
| Cost to Company | 10,28,560 | |||
Salary Head Basis - Fixed, % of Gross and Variable
a) Fixed Salary Components – In the above structure heads like
Basic, Petrol expense and LTA are modeled as Fixed. Since these heads are modeled
as fixed these are not linked to the overall Gross salary and any increase in
Gross salary does not automatically increase these heads.
b) % of Gross – these heads are similar to Fixed except that
these are linked to the Gross total and any increase in gross salary automatically
increases these heads.
c) Variable Components – Some salary components like Performance
Bonus, Project allowance which is given when employee are out of their home city
are variable by nature.
You can create a salary structure which allows for full flexibility to model various scenarios of monthly and annual payments. The structure has all the heads of earnings and any custom deduction head.
Flexible Benefits - you can also allow some parts of the salary to be designed by the employee, please refer to the write up on Flexible benefits for more details.
Cost to Company Heads - CTC heads can be either system
defined or custom. If you select system defined CTC heads then the values are
calculated as per the table given below. For custom CTC heads you will have to
input the values manually.
Head | Calculation Method |
PF & EPS - Employer Contribution | 12% x (total of heads included in EPF) subject to employer deduction
parameter in setup |
PF, EPS & EDLI - Employer Contribution + Admin Charges | 12.5% x (total of heads included in EPF) + 75, subject to employer
deduction parameter in setup |
ESI - Employer Contribution | 3.25% x (total of heads included in ESI) |
LWF - Employer Contribution | This depends upon the state |
Gratuity - Employer Contribution | 15 / 26 x (total of heads included in Gratuity) / 12 |
NPS - Employer Contribution | Amount declared in structure |