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Basic Salary


What is a Basic Salary?

Basic salary is the amount an employee earns before any additions or deductions. It excludes bonuses, insurance premiums, and overtime pay. Components such as gratuity, provident fund, bonus, etc., are often determined as a percentage of an employee's basic salary. The government may redefine the norms of basic salary from time to time.

Understanding basic salary is crucial for both employers and employees. For employers, it forms the base for calculating statutory contributions and other benefits. Top payroll software in India can automate these calculations and ensure accuracy in payroll processing.

How to calculate basic salary?

Basic salary is obtained by excluding the gross and the net salary from the total pay. The formula is:

Basic salary = Gross salary - Allowances (DA + HRA + LTA + others) - Bonus - Reimbursements.

For example,

  • The total salary of Amit is 40,000 rupees per month.
  • The tax deductions are 4000 rupees, and other deductions, including the professional tax, are 2000.
  • The allowances like Houserent, conveyance and dearness sums up to 18,000.
  • Now, the basic salary of Amit will be 16000Rs.
Salary Amount (rupees)
Total salary 40000
Tax deductions 4000
Professional tax 2000
Allowances 18000
Basic salary 16000

Frequently Asked Questions About Basic Salary

How to calculate basic salary?

Basic salary = Gross salary - Allowances (DA + HRA + LTA + others) - Bonus - Reimbursements

How is the basic salary of an employee decided?

The basic salary of an employee is dependent on many factors such as employee experience, qualifications, and the functions of the job role. Basic salary is the minimum amount of the payee of an employee which every organization follows.

What is the difference between basic salary and gross salary?

The gross salary is the total amount of salary given to an employee including the statutory additions and the deductions. Meanwhile, the basic salary is the salary given to an employee without any additions or deductions.

Is a low basic salary favorable to an employee?

The basic salary is taxable and should not be greater than 40% of the CTC. Moreover, lower basic pay results in more variable pay. Also, It should not be too low as it results in reduction in other components too.

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