Setting up salary heads

Setting up salary heads

This article covers all the heads which constitute the salary structure. There are a total of nine tabs on this page and some tabs might not be visible if the corresponding feature is not activated.

1. Salary Heads

From this tab system defined salary heads can be selected as per your company's policy.  You can change the names of system defined salary heads as per your requirement.  If you want certain heads to be used as Flexible benefit heads you can select the checkbox in the "Flexi" column. If you want to recover the amount paid against certain heads subsequently then select the checkbox in "Recovery" column.


Select Statutory Bonus head if you want to pay Statutory Bonus in salary through regular payroll.

2. Custom Heads

If you need additional salary heads then you can create them in this tab. Tax free heads can be created if the feature is activated for your company, get in touch with your Account Manager if you want to get it activated.


Category of heads

1. Monthly taxable or Annual taxable - these heads are mapped to Section 17(1) and can be added to salary structure and paid in salary

2. Monthly taxfree or Annual taxfree - these heads are mapped to Section 10

3. Monthly taxfree benefits - these heads are mapped to Section 17(2). You can also create taxable heads under section 17(2) and use them for making adhoc payments

The way the system treats heads mapped to Section 17(2) or Section 10 or if we do not map any head is explained very clearly in the article on Understanding taxability of Salary Components.

Additional attributes which can be defined for these heads arex

1. Flexi - if you want to allow the Payroll Manager to add these heads to the flexible salary design process enable the checkbox. Refer article on Releasing and managing flexible benefits for more details
2. Recovery - If you want to recover the amount paid against certain heads subsequently through Adhoc recovery option while running payroll, then select the checkbox in "Recovery" column. Refer article on Payroll process - step 2 for more details
3. Verification - If you select the Verification option then the head is paid in salary and verification is done against supporting documents. Verification can be done either as a part of annual tax saving submission process in which employee submits the proof or can be done by Payroll Manager centrally at the end of financial year before running March payroll.
Refer to the article on Understanding taxability of salary components for more details on how the verification of taxfree heads can be done. By default all section 10 heads have verification enabled, for section 17(2) heads you can choose to enable verification, once a section 17(2) head is used in a tax saving submission for any employee the verification flag cannot be unselected.
When verification is enabled for a new head, for all employees who have this head in their salary structure a pending verification record will be created, except for employees whose last working day has gone in past and whose full and final has been done (In process or later stage). These records will be created from April 2024 onwards.

Monthly Taxfree Benefit heads like Food Vouchers which are not paid in cash but paid as benefits to employees are also created in this section. These heads are automatically mapped to section 17(2). These heads are completely tax free but as per law the tax free limit is Rs 50 per meal, hence you should not give more than the monthly eligible limit as the food vouchers as a part of salary. System will not stop you from giving a higher amount.


Taxfree gift head can also be created using the "U/s 17(2)-Gift" option as shown below.


Refer the article on Taxfree gifts to employees for more details.

Heads can be created and mapped to "U/s 17(2) - Taxable", these heads will be treated as taxable perquisite heads. These heads can be paid in salary as an Adhoc head or by including in salary structure. These heads will be listed in Form 12BA which is a part of Form 16B.

3. Custom Deduction Heads

You can create new deductions heads in this tab. If you do not want to use a head anymore you can deactivate it.


4. Loan Heads

On this tab you can setup the different types of loans or advances which are to be used in payroll. Two types loan are available in system With Perquisite and Without Perquisite. 


5. Reimbursements

This tab is visible only when salary reimbursements feature has been activated. On this tab you can create heads for payroll reimbursements. Refer article - Managing reimbursement claim category for more details.

6. Cost to Company (CTC) Heads

This tab is visible only when CTC (cost to company) feature has been activated. Some CTC heads like PF, ESI, Gratuity are system defined and are visible when the feature is activated and you can add new custom CTC heads also from here. System defined CTC heads are auto calculated during payroll.


7. Adhoc Heads

Refer article for more details.

8. Salary Groups

You can combine heads and create a salary group. These groups are used while creating Offer Letters in Recruitment module and while showing the salary details in a salary increment letter.  By default the salary heads which are active are mapped to "Miscellaneous" group.


9. Other Income

Other Income heads are used to allow declaration of income from other sources by the employee. Heads created here are visible to employee from their login - refer article for more details.


There are five system defined other income heads.
1. Income / Loss From House Property
2. Income from Short Term Capital Gains : this head will be used to capture short term capital gains which are NOT covered under section 111A
3. Interest from Savings Account (u/s 80TTA) : rebate of Rs 10,000 for interest will be applied
4. Interest from Savings Account (u/s 80TTB) : rebate of Rs 50,000 for interest for senior citizen will be applied
5. Income from Other Sources

You can additionally create any custom other income heads. Income from all these heads will be treated as Other Income under section 192(2B).

If you do not want give the option to use a head to the employees then you can use the "Deactivate" option. Head can be deactivated as long as it has not been used. A custom head can be deleted as not as it has not been used.

Income from Long Term Capital Gains and Short Term Capital Gains u/s 111A cannot be declared in the software.


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