The basic salary is a fixed portion of the employee’s salary. It does not include allowances, bonuses, benefits, perks or any other compensation received from the employer.It is generally fixed depending on the employee's designation. The basic salary is increased depending on the employee's performance; otherwise, it remains fixed.It is a predictable and fixed source of income for any employee. It also forms the major component of the employee's taxable income.
The basic salary is calculated after deducting all allowances, benefits, bonuses, etc., from the Gross salary. It is also important to remember that the money an employee receives as compensation for working overtime is not included in the basic salary.
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Gross Salary means the total salary the employee receives, including all the allowances, bonuses, etc.
Hence, to calculate the basic salary from the Gross salary, we must deduct all allowances, bonuses, etc.
The formula for calculating basic salary from gross salary would be:
Basic Salary = Gross Salary - (All the allowances + benefits + bonuses, etc.)
Example: Mr A receives a Gross salary of Rs. 10,00,000, out of which allowances amount to Rs. 1,00,000, a bonus amounts to Rs. 1,50,000, and overtime pay amounts to Rs. 50,000.
We can use the above formula to find out Mr. A's basic salary.
Basic Salary = Gross Salary - (All the allowances + benefits + bonuses, etc.)
I.e., Basic Salary = 10,00,000 - (1,00,000 + 1,50,000 + 50,000), which is equal to Rs. 7,00,000 and hence the basic salary of Mr A is Rs. 7,00,000.