Knowledge Centre
Payroll
Payroll is the sum total of all compensation that a business must pay to its employees for a set period of time.
Payroll management can be quite a challenge for a new business owner. There are many provisions in Central and State laws that regulate payroll and failure to do so could result in regulatory problems and costs in terms of interest and penalties.
Compensation of employees is the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period. Usually,the following are major components of Payroll :
|
Particulars |
Type of Component |
Taxability Status |
Remarks |
| Basic |
Earning |
Fully Taxed-No Deduction |
The Basic is form of important figure for calculation of Retiral Benefits, PF Contributions, HRA Deduction, Leave Encashment etc.
|
| HRA [House Rent Allowance] |
Earning |
Taxed-Exemption to the Extent |
It can be paid to all employees whether they stay in rented house. It is Partly taxable *Note1. In case one has own house HRA is fully taxable. |
| Special Allowance |
Earning |
Fully Taxed-No Deduction |
It is a fully taxable component. It is balance of total gross salary as payable. |
| Variable Allowance |
Earning |
Fully Taxed-No Deduction |
It is a fully taxable component |
| Performance Award |
Earning |
Fully Taxed-No Deduction |
It is a fully taxable component |
| Bonus |
Earning |
Fully Taxed-No Deduction |
It is a fully taxable component |
| Referrals |
Earning |
Fully Taxed-No Deduction |
It is a fully taxable component |
| Meal Allowance |
Earning |
Fully Taxed-No Deduction |
It is a fully taxable component |
| Leave Travel Concession |
Earning |
Taxed-Exemption to an Extent |
Exempt for reimbursements for the amount spent for self and any member of the family on fare by economy class air or air-conditioned class rail by the shortest route (2-Journeys are allowed in a block of 4-Calendar-Years) |
| Income Tax (TDS) |
Deduction |
Not Taxed |
TDS is the part of the Income Tax payable by the employee on his annual salary and is deducted by the employer before paying the salary.
|
| Provident Fund (PF) |
Deduction |
Not Taxed | PF is a Social Security deduction component. It is calculated on 12% of Basic salary. |
| Professional Tax (PT) |
Deduction |
Not Taxed | PT varies from state to state. |
| ESI (Employee State Insurance) |
Deduction |
Not Taxed | ESI is applicable when the Gross Salary is up to INR 21,000 per month. |
*Note 1:
Lowest of the following are exempt from HRA under section 10(13A):
Actual HRA received
Rent paid over 10% of salary (Basic)
50% of salary (40% in case of Non-Metros)