Is there any particular law which defines % of basic. Can an employer keep 60% basic ?
There is no specific law which defines basic pay but we need to look into Minimum wages while fixing basic pay as the basic pay should be lesser than minimum wages. If you are considering 60% and if the basic pay is lesser than Minimum wages then you should consider minimum wages as basic pay .
There is no such restriction, Firstly we need to check whether it is adhering the State Minimum Wage.
Please note : Basic salary is fully Taxable. so it is better to keep at 40 to 50% and remaining to keep in HRA so that employee can avail max benefit in HRA exemption.
And important thing is, PF, Leave Encashment and Bonus, Notice period pay and recover all these depends on Basic Salary
Yes the employer can Keep Basic as 60%
Basic is taxable and statutory liable component.
Nothing is on written as off now for basic contribution limit. If company want then can keep.
As per industry standard Basic will be 30% non metros and 40% of Metros.
Max of 50% companies will follow as basic taxable income. Also PF will increase at that time and HRA benefit had.
At the start of this financial year, New wages code was about to be implemented by the GOI. But the same has not been implemented yet. As per that wage code Basic should be minimum 50% and other allowances should be upto 50%. As this wage code has not been implemented yet so employers can have the basic as previous where there is no such fixing of Basic of the salary by the GOI.
You should keep below factors as well, when you define the % for Basic salary
- Increased Basic would result in higher Gratuity outflow for eligible employees, since Gratuity is paid on Basic + DA
- Increased Basic would result in higher contribution to PF, if employee and employer contributes 12% of Basic. If PF wages is limited to 15000, then no impact to PF contribution
- The upcoming Code on Wages makes it mandatory to have 50% as wages, hence recommend limiting to 50% to stay aligned with Code on Wages
- Minimum wages (as recommended by Avils)