TAXATION ASSIGNMENT

9/9/2016

Group 1

By
Aparna Gautam (M2015HRM014)
Deekhsha Kher (M2015HRM018)
S Akshaya Lakshmi (M2015HRM040)

Taxation Assignment

Assignment
Compile a ready-reckoner of all items of compensation & benefits (C & B) for employees, indicating the
taxability or otherwise and making it as comprehensive as possible. Indicate against each such item:

Most suitable for which profile of employees (senior level/junior, young/aged etc), with reasons
The specific industry, if any, where it would be most suitable, with reason

Introduction
In the present context, when are markets are dynamic it is important to be able to understand the nuances
and accordingly plan the compensation and benefits for employees. From the employee perspective too,
today when companies provide them with the choice of choosing between various options, an in depth
knowledge of how to ensure a tax efficient compensation plan is highly useful.
Based on our study of compensation and benefit structures, there are certain important insights:
1. We have seen that introducing special allowances and other such allowances can really help reduce
the taxable portion of the income. Hence there has been a trend among companies to increase such
allowances and also give people choice of options i.e. Cafeteria system.
2. Dearness Allowance is majorly given in PSUs or to workmen, mostly no noticeable trend of DA
among employees in service sector.
3. In the BPO (services) industry, employees especially younger ones prefer more take home salary
as staff turnover is high and employment situation is very unstable and dynamic.
4. Since there is a trade-off therefore employees will be given an option to choose between maximum
taxes exemptions or more take home for himself/ herself.
5. The benefits component would be more in case of senior employees as that attracts higher tax
exemptions.
To make salary more tax efficient:

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Taxation Assignment

CTC components
1. Base Pay: In our case base pay includes basic and house rent allowance, basic is the biggest chunk,
usually 35-50 per cent of CTC. Since considering service sector so not included DA component.
2. Reimbursements and Allowances: These provide immediate gratification to employees. The
decision on Allowances and reimbursements is based on the scale and the tax rules. Allowances are
fully taxable if bills are not provided. However, if the expenses are incurred and bills submitted, the
allowances are either not taxable or taxed only after a limit.
3. Bonus: Bonus is always an added incentive to people. Many employers pay bonus based on several
factors like employee's performance (ex-gratia), years spent in the company and the company's profit
and expansion. Bonus is fully taxable.
4. Perks and Privileges: Perquisites provided by the employer such as a house with zero or concessional
rent, vehicle, insurance, medical and club facilities are also part of the total compensation. The tax
treatment also varies from situation to situation.
5. Long Term Benefits: CTC has certain components that will benefit you in the long run. All retirement
benefits-provident fund, contribution to an approved superannuation fund or the National Pension
Scheme (NPS) and gratuity-come in this category.

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Taxation Assignment

Our Compensation -Benefits Pay Mix

Sector
Designation

BPO
Level
Executive

1 Department

Base Pay
Basic
HRA

Perquisites
Insurance
Movable Asset
Food
Gifts
Interest Free or
Concession
Loan

Allowances

Long
Gains
PF

LTA
Medical Allw
Conveyance
Allw
Additional Allw

Operations(Rural)

Term

Gratuity

Mobile/
Telephone
Bonus

1. Basic - We would try to give base salary as 35% - 40% of the CTC. It is the acceptable trend in
the BPO (services) industry.
2. HRA We intend to give HRA as 50% of the basic in metro locations and 40% of the basic in
non-metro locations.
3. LTA We intend to provide grade-wise LTA which will be fixed. The LTA amount for four years
will be divided and will be provided as LTA allowance monthly. The employee can avail tax benefit
under LTA on producing travel documents. Employee, irrespective of whether he/she travels, will
get more cash in hand which is an imperative in BPO (Services) sector.

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Taxation Assignment

4. Medical allowance We intend to provide the choice of getting this allowance as part of monthly
salary or as reimbursements which is subject to tax benefit up to INR 15000 per annum. This
option will be decided by the employee at the time of joining the organization.
5. Conveyance Allowance It will be provided as part of salary. INR 1600 per month will be given
to the employee and it will be tax free.
6. Mobile/ Telephone This allowance will only be provided to senior employees in the
organization.
7. Additional Allowance Other allowances which will be part of taxable income.
8. Superannuation Fund We do not intend to provide superannuation fund because BPO sector
witnesses very high attrition rate. Managing admin cost and building trust for such senior
employees is too much of cost. Younger workforce is not much interested in retirals and this will
help us in increasing the cash component of the salary.
9. Gratuity It will be provided to employees who will complete 5 years in the organization. It will
be the least of a) 15 days of salary for each year of service b) INR 10 Lakhs.
10. PF PF will be paid at the rate of 12% of base pay. Base pay will be defined as all the fixed
components of the salary including basic salary and allowances up to the maximum base pay of
INR 15000 per month (excluding HRA). This is as per latest decision provided by the Supreme
Court of India in the year 2012 and clarification provided by EPFO. To further save tax, employees
will have the option of increasing the voluntary provident fund contribution.
11. Bonus We intend to pay bonus based on several factors, including the employee's performance
(also known as ex-gratia), years spent in the company and the company's growth. Bonus is fully
taxable in employees' hands, whether part of salary or not.
12. Food Coupons - The perquisite value of food and non-alcoholic beverages provided by the
employer during work hours at business premises or non-transferable food coupons/vouchers such
as Sodexo meal passes for purchasing food items and redeemable at specific stores is not taxable
to the extent of INR 50 per meal per working day. Employee will have the option to get coupons
worth INR 2200 per month (considering 5 days working week).
13. Gifts - Gifts and vouchers in lieu of gifts are not taxable up to INR 5,000 a year. Awards like Spot
awards etc can be provided in form of gifts.
14. Movable assets Will be provided to very senior level employees.

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Taxation Assignment

15. Concession Loan - The valuation of such a benefit is done on the basis of the interest that the
employee otherwise would have paid, which is taken as the rate charged by State Bank of India on
a yearly basis for similar loans and computed on the maximum outstanding monthly balance.
Given after the employee completing two years into the job.
16. Insurance As an employer we will be paying insurance premium and as its not considered a
perquisite, so it will be non-taxable.
17. ESOPS ESOPS can be provided to very senior level employees in form of grants with fixed
number of options vesting every year.
18. Company should also performance related goals for qualitative aspects like teamwork, customer
relations, initiative, adaptability etc. which have been ignored here.
Category 1 Customer care personnel

Position

Objective

Assumptions

Executive (Junior)

Relatively low service tenure

CTC INR 200000

and take home amount is

% of CTC as basic pay

Find the balance between long

CTC INR 2000000

range benefits and certain

Including

critical
Team Lead (Mid)

allowances.

mobile

phone

allowance as this member

might be taking up calls at odd
hours

for

official

work.

Amount is kept relatively low.

VP (Senior)

Focus on savings not violating

CTC INR 2500000

the overall compensation and

Eligible for car lease with

benefits philosophy mentioned

driver which is tax free up to

earlier.

INR 3300.

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Taxation Assignment

Overarching Assumptions
1. The medical insurance of both VP and agent is given same because the medical expenses and the
value of life would be same for all individuals.
2. The call center agent would be given a compulsory cab for commotion to office.
3. The VP s also given a personal car for commuting to office.
4. Some amount of performance related variable pay to be given as bonus is also included as
customer satisfaction is a very critical parameter for call center executives.
5. Executive and team lead are not eligible for car related benefits
CUSTOMER SERVICE (METRO)
Amount (Executive)
COMPONENTS

BASIC
HRA (50%)
PF
LTA
MEDICAL ALLW

Amount (HR Manager)

Amount (VP)

5000
2500
1380
500

15000
7500
1800
1500

50000
25000
1800
4000

1250

1250

1250

1600

1600

7150

65150

1000

3000

100000
1125

500000
3750

96000

660000

Covered up to 500000

0
2200
0

Covered up to 500000
Once in two years,
Company will provide
any one of AC,TV,
FRIDGE, Washing
Machine as per
employees choice
2200
0

0
0

Eligible
Eligible

CONVEYANCE
ALLW
1600
ADDITIONAL ALLW
3148
MOBILE/
TELEPHONE
0
CONCESSION
LOAN
GRATUITY
375
BONUS
(PER
37800
ANNUM)
INSURANCE
Covered up to 500000
MOVABLE ASSET

0
2200
Yearly 5000 limit

FOOD
GIFTS
COMPANY
ACCOMMODATION 0
CAR
0

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Taxation Assignment

For Non-Metro locations

1. We intend to reduce the HRA to 40% as compared to 50%.
2. There is a subsequent reduction in bonus.

CUSTOMER SERVICE (NON-METRO)

Amount (Executive)
COMPONENTS

BASIC
HRA (40%)
PF
LTA
MEDICAL ALLW
CONVEYANCE
ALLW
ADDITIONAL ALLW

Amount (Team Lead)

Amount (VP)

5000
2000
1380
500
1250

15000
6000
1800
1500
1250

50000
20000
1800
4000
1250

1600

1600

1600

3148

7150

65150

1000

3000

100000
1125

500000
3750

92700

641550

Covered up to 500000

Covered up to 500000

0
2200
Yearly 5000 limit

0
2200
0

Once in two years,

Company will provide
any one of AC,TV,
FRIDGE, Washing
Machine as per
employees choice
2200
0

0
0

0
0

Eligible
Eligible

MOBILE/
TELEPHONE
0
CONCESSION
LOAN
GRATUITY
375
BONUS
(PER
31415
ANNUM)
INSURANCE
Covered up to 500000
MOVABLE ASSET

FOOD
GIFTS
COMPANY
ACCOMMODATION
CAR

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Taxation Assignment

Category 2
Human Resource Department
1. Human Resource department in any services company is generally located at a metro location like
Delhi.
2. The three levels that we have considered here is HR Executive, HR Manager and HR-VP
Position

Objective

Assumptions

HRExecutive (Junior)

Relatively low service

CTC INR 200000

tenure and take home

% of CTC as basic pay

amount is critical.

Handles generalist types of roles and is an

interface with the employees.

HR Manager (Mid)

Find

balance

the

CTC INR 200000

between long range

Including mobile phone allowance as this

benefits and certain

member might be taking up calls at odd hours

allowances.

for official work. Amount is kept relatively low.

Handles specialized roles like managing

compensation,

performance

management

systems, recruitment etc.

HR-VP (Senior)

Focus on savings not

CTC INR 2500000

violating the overall

Eligible for car lease with driver which is tax

compensation

free up to INR 3300.

benefits

and

philosophy

mentioned earlier.

Manages and designs people strategy with other

people leaders in the organization.

Overarching Assumptions
1. HR is a support function and does not contribute to the bottom-line directly.
2. It is of relatively less importance as it is not a client facing role. However, HR is also a lean function
with few resources managing a large pool of people. So, CTC can be kept at par with customer
executives and performance related pay can be reduced.

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Taxation Assignment

3. The medical insurance of both VP and other two categories are same because the medical expenses
and the value of life would be same for all individuals.

HUMAN RESOURCE (METRO)

COMPONENTS

Amount (Executive)

Amount (HR Manager)

Amount (VP)

BASIC

5000

14250

50000

HRA (50%)

2500

7125

25000

PF

1380

1800

1800

LTA

500

1500

4000

MEDICAL ALLW

1250

1250

1250

CONVEYANCE
ALLW

1600

1600

1600

ADDITIONAL ALLW 3148

7150

65150

MOBILE/
TELEPHONE

1000

3000

CONCESSION
LOAN

100000

500000

GRATUITY

375

1125

3750

825888

334058

BONUS
ANNUM)

(PER 21543

INSURANCE

Covered up to 500000

Covered up to 500000

Covered up to 500000

MOVABLE ASSET

Once in two years,

some furniture etc.

FOOD

2200

2200

2200

GIFTS

Yearly 5000 limit

0
COMPANY
ACCOMMODATION

Eligible

Eligible

CAR

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Taxation Assignment

HUMAN RESOURCE (NON-METRO)

COMPONENTS

Amount (Executive)

Amount (Team Lead)

Amount (VP)

BASIC

5000

14250

50000

HRA (40%)

2000

5700

20000

PF

1380

1800

1800

LTA

500

1500

4000

MEDICAL ALLW

1250

1250

1250

CONVEYANCE
ALLW

1600

1600

1600

ADDITIONAL ALLW 3148

7150

65150

MOBILE*/
TELEPHONE

1000

3000

CONCESSION
LOAN

100000

500000

GRATUITY

375

1125

3750

825888

334058

BONUS
ANNUM)

(PER 21543

INSURANCE

Covered up to 500000

Covered up to 500000 Covered up to 500000

MOVABLE ASSET

Once in 2 years, company

will provide any one of
AC,TV,
FRIDGE,
Washing Machine as per
employees choice

FOOD

2200

2200

2200

GIFTS

Yearly 5000 limit

0
COMPANY
ACCOMMODATION

Eligible

Eligible

CAR

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Taxation Assignment

Category 3
Sales and Marketing
Objectives:
1.

Commission to be given at typically 6% to 8%.

2.
Slabs in variable pay If a person reaches 100% target, we provide 6% commission and as person
goes beyond 100%, the commission percentage also increases.
3.

Bonus for achieving sky high targets Immediate Cash reward

Compensation and benefits structure for sales function is tough to design as it involves slab based
incentives and lot of variable pay is involved. Sales has a lot of hierarchy generally and we have taken
three broad levels of Executive, Manager and VP-Sales.
The compensation of Sales and Marketing is generally hard to design as it involves a lot of incentives and
bonuses that are related to the sales and are variable. Typically, there are various levels in sales but for
convenience, we have taken Sales Executive, Sales Manager and Director, Sales & Marketing.
A commission heavy compensation structure might be looking very ambitious and motivating, but that is
not all. Lot of things depend on the market as well and sales people also need some compensation related
security for them to be at ease with o undue pressure. Only then they will upsell or get new customers into
our fold. For ease of administration, we use a flat variable pay in our company.
Position

Objective

Assumptions

Sales Executive Relatively low service tenure

CTC INR 200000

(Junior)

% of CTC as basic pay

CTC INR 2000000

Including mobile phone allowance as this

and take home amount is

critical.

Sales

Manager Find the balance between long

(Mid)

range

benefits

and

certain

allowances.

member might be taking up calls at odd

hours for official work. Amount is kept
relatively low.

SalesVP

Focus on savings not violating

CTC INR 2500000

(Senior)

the overall compensation and

Eligible for car lease with driver which is

benefits philosophy mentioned

earlier.

tax free up to INR 3300.

Development allowance since part of

leadership pipeline

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Taxation Assignment

SALES (METRO)
COMPONENTS

Amount (Executive)

Amount (Team Lead)

Amount (VP)

BASIC

5000

14250

50000

HRA (40%)

2500

7125

25000

PF

1380

1800

1800

LTA

500

1500

4000

MEDICAL ALLW

1250

1250

1250

CONVEYANCE
ALLW

1600

1600

1600

ADDITIONAL ALLW 3148

7150

65150

MOBILE*/
TELEPHONE

1000

3000

CONCESSION
LOAN

100000

500000

GRATUITY

375

1125

3750

825888

334058

BONUS
ANNUM)

(PER 21543

INSURANCE

Covered up to 500000

Covered up to
500000

Covered up to 500000

MOVABLE ASSET

Once in two years, some

furniture etc.

FOOD

2200

2200

2200

GIFTS

Yearly 5000 limit

0
COMPANY
ACCOMMODATION

Eligible

Eligible

CAR

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Taxation Assignment

SALES (NON-METRO)
COMPONENTS

Amount (Executive)

Amount (Team Lead)

Amount (VP)

BASIC

5000

14250

50000

HRA (40%)

2500

7125

25000

PF

1380

1800

1800

LTA

500

1500

4000

MEDICAL ALLW

1250

1250

1250

CONVEYANCE
ALLW

1600

1600

1600

ADDITIONAL ALLW 3148

7150

65150

MOBILE*/
TELEPHONE

1000

3000

CONCESSION
LOAN

100000

500000

GRATUITY

375

1125

3750

825888

334058

BONUS
ANNUM)

(PER 21543

INSURANCE

Covered up to 500000

Covered up to
500000

Covered up to 500000

MOVABLE ASSET

Once in two years, some

furniture etc.

FOOD

2200

2200

2200

GIFTS

Yearly 5000 limit

0
COMPANY
ACCOMMODATION

Eligible

Eligible

CAR

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Taxation Assignment

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