Basic salary is defined as the amount an employee earns before making any addition or deduction to it. The basic salary excludes bonuses, insurance premiums, and overtime pay. The components such as gratuity, provident fund, bonus, etc., are determined as per an employee’s basic salary. The government may redefine the norms of basic salary from time to time. The meaning of basic salary would be more transparent after going through the question below.
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.
Basic salary = Gross salary - Allowances (DA + HRA + LTA + others) - Bonus - Reimbursements
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.
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.
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.