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  • Basic Salary

    Money Makes the World Go Around:

    If you believe in the adage, ‘money makes the world go around’, salary is the most important aspect of your job profile. It is an indicator of your position, growth and success in the company and will, in many cases, determine the course of your career. If you wish to change your organization, your prospective employees will place you in their company structure primarily on your remuneration. In government services in India, there is a pay grade depending on the designation of the employee. But what does a salary exactly constitute? You would do well to have a clear understanding of what the terms basic, gross and net salary mean.

    What does ‘Salary’ Mean?

    The word ‘salary’ originates from the Latin word 'salarium'. It was the quota of salt given to Roman soldiers in addition to their pay. When the officers found it cumbersome to transport and preserve the huge bulk of salt, they began offering a sum of money instead of the commodity. The money received was referred to as 'salarium' or salt-money which soon came to be known as ‘salary’ in modern English. Although the word ‘salary’ is, in many cases, used interchangeably with the word ‘wages’, in strict technical terms, they are not the same.

    What’s Basic Salary?

    Basic salary is the base income of an individual. Basic salary is the amount paid to employees before any reductions or increases due to overtime or bonus, allowances (internet usage for those who work from home or communication allowance). Basic salary is a fixed amount paid to employees by their employers in return for the work performed or performance of professional duties by the former. Base salary, therefore, does not include bonuses, benefits or any other compensation from employers. As the name suggests, basic salary is the core of the salary of an employee. It is a fixed part of the compensation structure of an employee and generally depends on her or her designation. If the appointment of an employee is made on a pay scale, the basic salary may increase every year. Else, it remains fixed.

    According to experts, the basic salary differs according to the type of the industry. For instance, employees in the information technology industry prefer take-home salary (since the staff turnover is high) while employees in the manufacturing companies get more fringe benefits.

    How to Calculate Basic Salary?

    Given that it is the base income, basic salary is used to calculate other constituents of the salary. Several components of a salary package may be calculated based on the basic salary amount (on the basis of the grade of an employee within a company’s salary structure). It is important to note that the amount of money that an employee earns working overtime does not, in any manner, raise his or her basic pay amount. If an employee receives an incentive bonus in a year, it will not increase his or her basic salary. The basic pay, therefore, does not change, unless an employee negotiates with her or her employer.

    Is Basic Salary Taxable?

    Basic salary is always taxable and should, therefore, not be more than 40% of the cost to company. However, it should also not be kept too low since it will then result in reduction in the other constituents of the salary. According to experts, employees at a junior level usually have a higher amount as basic salary compared to senior level employees. If an employee has a high basic salary, he or she will have to pay tax on it.

    What’s the Difference Between Basic and Gross Salary?

    Basic salary is a rate of pay agreed upon by an employer and employee and does not include overtime or any extra compensation. Gross salary, however, is the amount paid before tax or other deductions and includes overtime pay and bonuses. For instance, if an employee has a gross salary of Rs. 40,000 and a basic salary is Rs.18,000, he or she will get Rs.18,000 as fixed salary in addition to other allowances such as House rent allowance, conveyance, communication, dearness allowance, city allowance or any other special allowance.

    What’s the Difference Between Basic Salary and Net Salary?

    Net salary is the remainder after statutory deductions such as taxes are made from the gross salary. Net salary is the ‘take home’ salary of an employee.

    How to Calculate Basic Salary from Gross Salary?

    Gross salary = Basic salary + HRA (House rent allowance) + DA (dearness allowance) + MA (medical allowance). On an excel sheet, the formula is =SUM(D2:G2)

    Below is a table showing different components of a salary including CTC break-up. CTC includes both monetary and non-monetary items. All allowances and cash reimbursements are part of the package in addition to long-term and retirement benefits such as provident fund and gratuity.

    Items   Amount Exempt Taxable
    Basic Salary   4,80,000.00   4,80,000.00
    Monthly Allowances        
    HRA 2,40,000.00     2,40,000.00
    Dearness Allowance 40,000.00     40,000.00
    Conveyance 36,000.00   9600 26,400.00
    Entertainment 18,000.00     18,000.00
    Overtime 11,000.00     11,000.00
    Medical Reimbursement 15,000.00 3,60,000.00 15000 -
    LTA   60,000.00   -
    Social Security        
    Medical Insurance 9,600.00     9,600.00
    PF 12% of Basic 50,400.00 60,000.00 50,400 50,400.00
    Gross Salary   9,60,000.00   8,75,400.00
    Annual Bonus   2,40,000.00   2,40,000.00
    CTC   12,00,000.00   11,15,400.00
    Read Difference between Take-Home Salary, Net Salary, Gross Salary and CTC.

    News About Basic Salary

    • Seventh Pay Commission recommendations to be revised by Secretaries Group

      By the end of June, Secretaries Group or the Empowered Committee will be handing over its report on the seventh pay commission recommendations, to the Finance Minister Mr. Arun Jaitley.

      The proposal will then be made to the cabinet after it has been presented to the Finance Ministry.

      After the cabinet approves the proposal, changes will be rolled out in the month of July. The highest proposed salary is Rs.2,50,000 and the lowest is Rs.18,000. 14.27% increase has been recommended by the commission for the basic salary and 23.55% for the overall salary. Once these recommendations are finalized, the salaries of over 52 lakh pensioners and 48 lakh central government employees will be raised by 30%

      25th May 2016

    • 5 Lakh Government Employees to go on strike in MP

      Placing their demands for grade fixation and another 71-point charter of demand, 5 lakh government employees in the state of Madhya Pradesh have decided to go on a strike. MP is the first state to change salaries of its employees in accordance with recommendations of the pay commission.However, instead the employees are pushing for fixing of grade and interim relief.

      Talks on these were on with the General Administration Department but since they failed and no result could be obtained, the employees have decided to take the strike route to get their demands fulfilled. Around 1.5 lakh employees in MP fall in the pay grade of Rs. 3200-3600 and these employees are demanding a scale similar to that offered to central government employees or the employees in Chhatisgarh.

      31st March 2016

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