Salary Structuring & Perquisite Advisory

What is salary structuring and perquisite advisory?

Salary structuring is deciding how an employee's CTC is split into basic pay, allowances, reimbursements, benefits and retirement contributions. Perquisite advisory covers the tax treatment of non-cash benefits like company cars, accommodation, meals, loans and ESOPs.

The right structure depends on the tax regime employees choose, the Labour Codes' wage definition, and the business's costs. With the new tax regime as the default and fewer exemptions available, structures designed years ago often no longer make sense.

The key terms

The components of a structure:

Basic pay

The core salary; the base for PF, gratuity and HRA, and relevant to the Labour Codes' wage definition.

HRA

House rent allowance, partly exempt under the old tax regime for employees paying rent; not exempt under the new regime.

Employer NPS contribution

Employer contributions to NPS are deductible within limits under both regimes — a useful component under the new regime.

Perquisites

Non-cash benefits taxed at values set by the tax rules, like accommodation, cars and concessional loans.

Reimbursements

Payments for business expenses against bills, not taxable when genuinely for business.

Standard deduction

A flat deduction from salary income, higher under the new regime.

ESOPs

Taxed as a perquisite on exercise, and again as capital gains on sale.

Why it matters

Structure affects both employer and employee:

Take-home pay

A good structure increases after-tax pay at the same cost.

Regime choice

What helps under the old regime often doesn't under the new one.

Labour Codes

The 50% wage rule affects PF, gratuity and structure design.

Employer cost

Structure changes PF and gratuity costs.

Perquisite tax

Wrongly valued perquisites lead to TDS shortfalls and notices.

Talent

Competitive, clear structures help hiring and retention.

Simplicity

Fewer components are easier to run and explain.

Who is this for?

Tax rules for salary are changing with the Income-tax Act, 2025 and its rules; we apply the rules for the relevant year.

Structure components under each regime

How common components work:

What we'll need from you

Current structures

CTC breakdowns by grade.

Regime choices

How many employees choose each regime.

Benefits offered

Cars, accommodation, meals, insurance, loans and ESOPs.

PF policy

Whether PF is on actual wages or the ceiling.

Budget

The cost envelope for the redesign.

HR policies

Reimbursement and benefit policies.

Engagements are quoted by the number of grades and benefits reviewed.

How we redesign structures

Our approach:

1. 1

   Review

   Current structures, benefits and regime choices are reviewed.

2. 2

   Check compliance

   Structures are tested against the Labour Codes and tax rules.

3. 3

   Model

   Options are modelled for take-home pay and employer cost.

4. 4

   Value perquisites

   Non-cash benefits are valued under current rules.

5. 5

   Recommend

   A recommended structure and policies are agreed.

6. 6

   Implement

   Payroll is updated and employees briefed.

Keeping structures current

Revisit structures when:

Budgets change rules

Review after each Budget and rules change.

New tax rules

The Income-tax Act, 2025 rules change some perquisite values.

Labour Code rules

Check the wage definition as rules settle.

Increments

Apply the structure consistently in revisions.

New benefits

Check the tax treatment before introducing a benefit.

Regime shifts

Track how many employees choose each regime.

Benefits and responsibilities