How do companies adjust salaries? Whenever you go for a job interview or join a new position, the first thing that's discussed is salary. HR always asks you a salary question: how much is your in-hand salary, and how much is your basic salary? Sometimes you make a higher salary demand, and HR agrees and adjusts it to your CTC. But do you know how companies adjust salaries and what this game of basic salary and in-hand salary is?

How do companies adjust salaries?
In fact, an employee's basic salary is fully taxable, but some parts of the salary, such as allowances, are tax-exempt. Therefore, if the basic salary is reduced and other allowances are increased, the employee receives a higher in-hand salary after tax deductions. Companies can also set the salary structure in a way that minimizes tax deductions.

Suppose someone's salary is Basic: 50,000, HRA: 20,000, and Special Allowance: 10,000. If the Basic is reduced to 40,000 and the HRA or Special Allowance is increased, some portion is saved from tax, resulting in a lower total tax.

How to Increase In-Hand Salary Without Increasing CTC
CTC includes your entire salary as well as company contributions such as PF, insurance, etc. Sometimes, companies reduce the basic salary, reducing the PF contribution of both the employee and the company. They increase the allowances directly paid to the employee, resulting in a higher in-hand salary for the employee, while the company's total CTC remains approximately the same.

How Companies Reduce PF Funds
PF is 12% of the basic salary, which is shared by both the employee and the company. If the Basic is reduced, less money is deposited into the PF account. The company's PF expenses are reduced, and the employee also receives a slightly higher paycheck.

How does a company benefit from a low basic salary?
Having a low basic salary offers several advantages to companies, such as the flexibility to increase allowances based on performance, the ease of adjusting salaries for tax planning, and the ability to add various perks and reimbursements.

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