Compensation

Also known as

Total Returns for Work Or Total Rewards

Total Returns for Work
 Framework for Analyzing Employment
Relationships
HIGH PAY – LOW COMMITMENT HIGH PAY – HIGH COMMITMENT

Hired Guns Cult - like

(Stockbrokers) (Microsoft)
TRANSACTIONAL

LOW PAY – LOW COMMITMENT LOW PAY – HIGH COMMITMENT

Workers as Commodity Family

Low

(Employers of Migrant (Starbucks)

Farm Workers)

Low RELATIONAL High

 Strategic Choices
How do we win (gain
competitive advantage) in those How should HR help us win?
businesses?

Business unit
HR strategies
strategies
Corporate objectives,
strategic plans, vision,
and values Strategic
Social, compensation
What business should we be in? competitive, decisions
and regulatory
environment
Compensation
systems

How should total

compensation help us Employee
win? attitudes and
behaviours

Competitive
advantage
 Exhibit 1.5: THE PAY MODEL

POLICIES TECHNIQUES OBJECTIVES

Work Descriptions Evaluation/ INTERNAL

ALIGNMENT
analysis certification STRUCTURE
EFFICIENCY
• Performance
• Quality
Market Surveys Policy PAY
COMPETITIVENESS definitions lines STRUCTURE
• Customers
• Stockholders
• Costs

Seniority Performance Merit INCENTIVE FAIRNESS

CONTRIBUTORS based based guidelines PROGRAMS

COMPLIANCE
MANAGEMENT Costs Communication Change EVALUATION
 INCOME TAX
Your payslip explained

Basic Salary
This is a fixed component in your pay check and forms the basis of other portions of your
salary and hence the name. It is usually a large portion of your total salary.
House Rent Allowance
Salaried individuals who live in a rented house/apartment can claim House Rent
Allowance or HRA to lower taxes. This can be partially or completely exempt from taxes.

Medical Reimbursement
If your company provides you with medical reimbursement of Rs.15,000 towards
medical expenses, you must submit bills to your employer to claim this. These expenses
could be incurred towards consultation with a doctor, medicines, medical tests etc.

Conveyance Allowance
Conveyance allowance is given to employees to meet travel expenses from residence to
work. Starting FY 2015-16, this limit has been increased to Rs.19,200 per annum
 INCOME TAX
Your payslip explained

Leave Travel Allowance

Salaried employees can avail exemption for a trip within India under Leave Travel
Allowance. The exemption is only for shortest distance on a trip.
This allowance can only be claimed for a trip taken with your spouse, children and
parents. Note that only 2 journeys can be claimed in a block of 4 years. We are currently
on the 1st Jan 2014- 31 Dec 2017 block

Special Allowance
Any number in your salary by the name of 'special allowance' is fully taxable. This is
usually the left over component of your salary, after allocating to Basic, HRA, LTA,
Transport Allowance etc

Bonus
Bonus is usually paid once or twice a year. Bonus, performance incentive, whatever may
be its name is 100% taxable. Performance bonus is usually linked to your appraisal ratings
or your performance during a period and is based on the company policy
 INCOME TAX
Your payslip explained

Employee Contribution to PF
Both employer and employee contribute a 12% equivalent of the employee's basic salary
every month toward employee's pension and provident fund. An interest of about 8.8%
gets accrued on it. This is a retirement benefit that companies with over 20 employees
must provide

Special Allowance
Any number in your salary by the name of 'special allowance' is fully taxable. This is
usually the left over component of your salary, after allocating to Basic, HRA, LTA,
Transport Allowance etc

Professional Tax
Professional tax or tax on employment is a tax levied by a state, just like income tax which
is levied by the central government. The maximum amount of professional tax that can
be levied by a state is Rs 2,500.
Up to Rs.7500 Nil Rs. 7501 to Rs.10000Rs. 175 per month
Above Rs. 10000Rs. 2,500 p.a. (200 per month except for Feb where it is Rs 300/-)
 RETIREMENT BENEFITS

Exemption on receipts at the time of voluntary retirement

Any compensation received upon voluntary retirement or seperation is exempt from
tax as per Section 10(10C) when the following conditions are fulfilled
Compensation received is towards voluntary retirement or separation
Maximum compensation received does not exceed Rs.5,00,000

Pension
Pension is taxable under the head salaries in the income tax return. Pension is paid
out periodically on a monthly basis usually. You may also choose to take pension as a
lump sum (also called commuted pension) instead of a periodical payment.
At the time of retirement, you may choose to receive a certain percentage of your
pension in advance. Such pension received in advance is called commuted pension.

Gratuity
Gratuity is a retirement benefit that employers provide for their employees. The
employee is entitled to receive gratuity when he completes five years of service at
that company. It is however only paid on retirement or resignation. Taxation is upto a
maximum of 10L or actual gratuity – which ever is lower
 Perquisites - Taxation

What are Perquisites?

Perquisites are benefits received by a person as a result of his/her official position and are
over and above the salary or wages. These fringe benefits or perquisites can be taxable or
non-taxable depending upon their nature.

According to the Finance Act, 2005, perquisites are taxed by the government in case
these perks are provided or are deemed to be provided to employees by employers.
The rate at which perquisites are taxed is 30% of the value of fringe benefits.
The perquisite tax is paid by the employer who furnishes these fringe benefits to
employees. It can be a company, a firm, an association of persons or body of
individuals.
Taxable Perquisites
1) Value of rent free accommodation provided to the assesses by his employer,
2) Value of any accommodation provided to the assesses by his employer, at a concessional
rent
Non-Taxable Perquisites
1) Value of medical treatment provided to an employee or his family member in a hospital
maintained by his employer;
2) Reimbursement of expenditure incurred on medical treatment of and employee or his
family member in a Government approved hospital (like CHS or CGHS)
 Perquisites - Taxation

Type of Accommodation Population of the city Percentage of tax

Owned by employer Greater than 25 lakhs 15%

Type of Car Rate of tax

Small cars below 1.6 litres Rs.1800 per month
Big cars above 1.6 litres Rs.2400 per month

Income Tax Slab Income Tax Rate

Income upto Rs.

Nil
2,50,000
Surcharge: 10% of income tax, where total
Income between Rs. 5% of Income income exceeds Rs.50 lakh up to Rs.1 crore.
2,50,001 - Rs. 500,000 exceeding Rs. 2,50,000 Surcharge: 15% of income tax, where the
total income exceeds Rs.1 crore.
Income between Rs. 20% of Income
500,001 - Rs. 10,00,000 exceeding Rs. 5,00,000 Cess: 3% on total of income tax + surcharge

30% of Income
Income above Rs.
exceeding Rs.
10,00,000
10,00,000
 CTC and Take home
Salary Components Amount Components Amount
Basic Salary Rs. Basic Salary Rs. 3,00,000
3,00,000
Special Allowance Rs. 1,00,000
Special Allowance Rs.
1,00,000 HRA (less exemption on Rs. 50,000
HRA Rs. production of rent receipts)
80,000
Medical Reimbursements Rs. Bonus received Rs. 70,000
15,000
Medical Insurance for you and your family Rs. 5,000 Total Salary Rs. 5,20,000

PF (12% of basic) Rs. Less: 12% PF Rs. 36,000

36,000
Less: Tax Payable* Rs. 12,875
Performance bonus Rs.
(range between 50,000 to 75,000 based on 75,000
performance ratings) Take Home Salary Rs. 4,71,125
Total CTC Rs.
6,11,000

Broadly your CTC will include these

Salary received each month, Retirement benefits such as PF and Gratuity
Non-monetary benefits such as an office cab service, medical insurance paid for by the company, or free meals at the office, a
phone provided to you and bills reimbursed by your company.

Your take-home salary will include

Gross Salary received each month
minus allowable exemptions such as HRA, LTA, conveyance allowance etc.
minus income taxes payable (calculated after considering Section 80 deductions)
 Income Tax - What income am I taxed for?

Income from Salary All the money you receive while rendering your job as a
result of an employment contract

Income from House Property Income from house property you own; property can be
self-occupied or rented out.

Income from other sources Income accrued from Fixed Deposits and Savings
Account come under this head.

Income from Capital Gains Income earned from sale of a capital asset, say mutual
funds or house property.

Income from business and Income/loss arising as a result of carrying on a business

profession or profession. Freelancers income come under this head
 Income Tax Returns?

What is Form 16
Form 16 is a TDS certificate. Your employer is required by the I-T Department to deduct
TDS on your salary and deposit it with the government.
The Form 16 certificate contains details about the salary you have earned during the year
and the TDS amount deducted.
It has two parts -- Part A with details about employer and employee name, address, PAN
and TAN details and TDS deductions.
Part B includes details of salary paid, other incomes, deductions allowed, tax payable.

Form 26AS
Form 26AS is a summary of taxes deducted on your behalf and taxes paid by you. This is
provided by the Income Tax Department.
It shows details of tax deducted on your behalf by deductors, details on tax deposited by
taxpayers and tax refund received in the financial year. This form can be accessed from
the I-T Department's website.
Section 80C of the Income Tax Act can reduce your gross income by Rs.1,50,000/- There
are a bunch of other deductions under Section 80C to 80U that reduces your tax
liability.