Some companies offer employees flexibility of structuring their own salary. A little understanding and negotiation of various components can ensure you increase your take-home salary, reduce your tax liability and enjoy higher job benefits.
CTC is different and always more than the net monthly take-home. There can be instances wherein your annual CTC is `6lakh but only around
`30,000 is being credited to your salary account every month. Where the remaining `20,000 goes, is for you to make out! Here are some things to look for.
BASIC EARNINGS
Try and maximise the 'basic component'. A higher basic ensures higher contribution from your employer and you to the provident fund (PF) kitty, which plays a critical role in your retirement planning. For example, if your basic is `20,000 per month and growing at five per cent yearly over a 35-year career, the PF balance when you retire at 60 would accumulate up to `2crore! A higher basic will also fetch more gratuity payout, either when you retire or leave the job after five years. About 40-50 per cent of CTC as basic salary is a healthy percentage. Any allowances dipping into the basic should be minimised, as it reduces the company's obligation towards PF, gratuity and leave encashment.
ALLOWANCES
Some allowances in the CTC are exempt from tax. Like conveyance allowance to the extent of `800 per month, medical allowance of `15,000 per year and leave travel allowance for two years in a block of four years. Ensure your employer is including all these components in the CTC and to the mentioned limits only. Others like special allowance and additional allowance are taxable components and usually included to keep the 'basic' component lower, while increasing the pay. Check if you can have a say in this and increase your basic.
REIMBURSEMENTS
Most companies have a reimbursement component, wherein you are reimbursed to the extent of bills produced on expenses such as mobile bills, books, newspapers, business promotion, restaurant
BONUS
Would also like to push a higher percentage into this component, to minimise employee turnover.
You should check this component's percentage and also the terms and conditions related to its payout. A higher percentage of bonus component reduces your basic salary. Also, you need to discount the bonus with a tax deducted at source (TDS) of 10-30 per cent. It's better to take the maximum in the form of basic salary or allowances. It helps you get a higher package in the next job.
JOB BENEFITS
Many of the bigger and established companies run employment benefit schemes, the PF being the most common. The government mandates an employer to match employees' contribution to PF, which is 12 per cent of basic pay, plus dearness allowance. It is important that the employer communicate clearly what forms a part of CTC while promising a particular salary structure to you.
Gratuity is payable only at the time of retirement or if you complete five years with the organisation. So, ideally, this should not form a part of CTC, but some companies include a notional value of the expected outflow from their end. If so, seek clarity.
Similarly, you should get clarity on group insurance policies, transportation facilities and superannuation contribution. In some cases, employers may also include training costs, interest on loans / advances, entertainment costs, canteen costs and club facilities. Make sure the company doesn't create an illusion of higher CTC by including these components.
Don't be swayed by the CTC figures offered to you. Check the above items to figure out, if, what is being offered is really worth the lure!
BASIC EARNINGS
Basic Salary Higher the better House Rent As per actual rental Allowance outgo Special/Additional Try to move as much Allowance to basic Tax-free Allowances Conveyance `.800 pm Allowance Medical Allowance `.15000 pa Leave Travel Allowance As per actual outgo
REIMBURSEMENTS
Telephone, Internet, books & papers Business Development (travel & food) Car (Fuel, Maintenance, Insurance)
BONUS
Annual Bonus Performance/Variable Bonus
EMPLOYMENT BENEFITS
Provident Fund Max out yours and employer's contribution Gratuity Ensure a notional value is not included as part of CTC Group Mediclaim / Good if company is Life insurance providing this benefit even if at a cost
Happy Investing!!
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