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 Formula of Basic Salary
06-10-2010, 06:39 PM
Post: #1
 AbdulSamad Member Posts: 62 Joined: Feb 2007 Reputation: 0
Formula of Basic Salary
Can any one tell me what is the formula to calculate "Basic Salary"? if it pertain to any section, please provide.

I have read 10% medical allowance Exempt on basic salary if company not provide any medical treatment or hospitalization charges.

Thanks

06-10-2010, 08:07 PM
Post: #2
 Imran Sheikh Junior Member Posts: 5 Joined: Apr 2010 Reputation: 0

In Which Gross Salary Include all allowances 100% benfit of employee. Basic Salary 55% of Gross Salary. For Expample G Salary of Ali 100,000 K.Then 55% of 100,000= 55,000 is Basic othen then Allowances.

Regards,

M Imran Sheikh
06-10-2010, 08:38 PM
Post: #3
 muslimpakistani Junior Member Posts: 1 Joined: Jun 2010 Reputation: 0

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Imran Sheikh</i>
<br />In Which Gross Salary Include all allowances 100% benfit of employee. Basic Salary 55% of Gross Salary. For Expample G Salary of Ali 100,000 K.Then 55% of 100,000= 55,000 is Basic othen then Allowances.

Regards,

M Imran Sheikh
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Dears,

There is no section which dictate or provide guidelines to calculate the basic salary. Its up to the employer and employee what they mutually decide.

<b>Commonly Used Formula</b>
The simple way of calculating the Basic Salary is to divide Gross salary by 1.5. Suppose gross salary of Mr. A is Rs. 45,000. Just divide it by 1.5 and you will get the result that the Basic Salary of Mr. A is Rs. 30,000 and Rs. 15,000 are allowances.

<b>Why this formula was come into use</b>
In Income Tax Ordinance, 1979 there was rule that you can not allow allowances more than 50% of the Basic Salary.(BS) Therefore, people started to divide salary in three parts. Two parts as Basic Salary and one part are allowances.

<b>Why I.T.O. fix the percentage of allowances</b>
At that time many allowances are exempt from income tax like, House Rent 45% of BS, Utilities 10%, Conveyance Rs. 3600 and medical 100%. Therefore, CBR was forced to restrict the allowances up to fix percentage.

<b>Final Words</b>
Even now when all the allowances are taxable except the medical allowance (Up to 10% of BS) People are still using the same formula.

Hope i have explained the matter.
06-10-2010, 08:56 PM
Post: #4
 AbdulSamad Member Posts: 62 Joined: Feb 2007 Reputation: 0

Thanks Muslim Pakistani

Actually our tax consultant exempt 10% Medical which calculation below-

100,000 gross Salary

Gross Salary - Medical Allowances
100,000 - (100,000/11)
100,000 - 9,090
90,909 x 12 = 1,090,909 is taxable income

is that correct?
06-14-2010, 07:22 PM
Post: #5
 hijaze Junior Member Posts: 1 Joined: Jun 2010 Reputation: 0

This formula is technically right.

<br />Thanks Muslim Pakistani

Actually our tax consultant exempt 10% Medical which calculation below-

100,000 gross Salary

Gross Salary - Medical Allowances
100,000 - (100,000/11)
100,000 - 9,090
90,909 x 12 = 1,090,909 is taxable income

is that correct?
[/quote]
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