Basic salary is the base income of an individual. Basic salary is the amount paid to employees before any reductions or increases due to overtime or bonus, allowances (internet usage for those who work from home or communication allowance). Basic salary is a fixed amount paid to employees by their employers in return for the work performed or performance of professional duties by the former. Base salary, therefore, does not include bonuses, benefits or any other compensation from employers. As the name suggests, basic salary is the core of the salary of an employee. It is a fixed part of the compensation structure of an employee and generally depends on her or her designation. If the appointment of an employee is made on a pay scale, the basic salary may increase every year. Else, it remains fixed.

How to Calculate Basic Salary?

Given that it is the base income, basic salary is used to calculate other constituents of the salary. Several components of a salary package may be calculated based on the basic salary amount (on the basis of the grade of an employee within a company’s salary structure). It is important to note that the amount of money that an employee earns working overtime does not, in any manner, raise his or her basic pay amount. If an employee receives an incentive bonus in a year, it will not increase his or her basic salary. The basic pay, therefore, does not change, unless an employee negotiates with her or her employer.

Calculation of Basic Salary from Gross Salary

Gross salary = Basic salary + HRA (House rent allowance) + DA (dearness allowance) + MA (medical allowance). On an excel sheet, the formula is =SUM(D2:G2)

Basic salary is always taxable and should, therefore, not be more than 40% of the cost to company. However, it should also not be kept too low since it will then result in reduction in the other constituents of the salary. According to experts, employees at a junior level usually have a higher amount as basic salary compared to senior level employees. If an employee has a high basic salary, he or she will have to pay tax on it.