If you are looking for information on how to set How set Employee Performance Bonus and Special Allowance, you should first understand some basic facts related to the Employment laws in order to design a widespread salary construction for employees. Here, just go through the important facts related to the salary.
Basic Salary – it refers to the basic salary which is used to estimate different other constituents of the income. Consider the fact that basic salary is always chargeable and hence preferably should not be reserved more than 40% percent of (“CTC”) but then keeping it to little may also reason the reduction in other facts of the salary.
House Rent Allowance (“HRA”) – it is another important part of the salary structure. It remains 40 to 50% of the basic salary. It’s significant to note that HRA turns taxable if you do not settle down any kind of rent. Moreover, if the HRA is lower than 40% percent of the basic, you will miss out on the opportunity to decrease tax.
Special allowance – it is an important part which makes up for the rest part of the income. It is normally not bigger as compared to the basic salary. It is the part which really cannot be treated simply as any other ingredient of the salary. Here, on this section, one needs to pay out tax.
Provident Fund Contribution – It is completely governed by the Provisions Act, 1952 and Employees Provident Funds. It’s a kind of social security that workers find in the form of monthly contribution for their elderly age, giving up work or some kind of emergency. This part is directly deducted from the employee’s salary and removed in a fund recognized as the worker provident fund.
Bonus – Payment of Bonus Act, 1965 is related to the bonus and significant part of CTC, which is usually offered once a year in lump sum according to the employee’s and the company’s whole performance. It is taxable as a part of the earnings. In several companies, this amount is also changeable according to the employee’s performance and meeting their key performance indicators (“KPI”).
Gratuity – Payment of Gratuity is rightly governed by the Payment of Gratuity Act, 1972 and need to pay a fixed amount of money to the company, when the worker no matter retires or even resigns from the company. Meanwhile, for this, it needs to be paid the employee requirements to have worked in the company for last 5 years. Gratuity can be calculated with the below-mentioned formula:
Gratuity = Last drawn salary x 15/26 x No. of years of service
Medical Repayment – it is a section of the salary where the employee finds payment paid for the medical expenses that they acquire. It is tax-free just up to INR 15,000 with a year. If the employee does not create medical bills for the sum, then the sum will be further added to the salary of the employee.
Employee Stock Options Plans (ESOP) – ESOP is designed in order to retain employees in the company. These are incentive programs that give the applicable employees the freedom to buy the company’s common stock at a discount price. If the shareholder possesses the shares for more than one year, in the meantime capital gains tax will not be valid.
Leave Travel Allowance – This kind of allowance is normally paid to the employee for a family tour to any place in India. This amount is completely free from tax. One can ideally complete the journey by rail or air, according to the employer offers.
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