Everyone's face lights up when they receive a "Salary Credited" message on their phone on the 1st of every month. But have you ever looked closely at your salary slip? The gross salary appears substantial, but the "basic salary" column is often quite small.

So if you think it doesn't matter because the money is coming in anyway, wait! Yes, you are unknowingly becoming a part of a calculus in which the company benefits and future losses are yours.

The question is, why do companies keep basic salaries low?

Why do companies do this? A Simple Calculation

Companies cleverly divide your salary into various components such as HRA, conveyance allowance, special allowance, and medical allowance. The basic salary is kept at only 35% to 50% of the total package, and there are two major reasons for this:

PF (12%) and company contribution depend entirely on your basic salary.

As the basic salary decreases, the PF amount for both the employee and the company decreases.

Gratuity is calculated only on the basic salary, not the full in-hand salary.

By reducing the basic salary, the company reduces the burden of future payments.

By increasing allowances, you perceive your salary as having increased, while actual savings decrease.

Lower PF and gratuity mean less money at retirement.

Profit today, loss tomorrow.

In-hand salary appears higher now, but future security is weakened.

The PF (12%) deducted from your salary is based on the basic pay. If the basic salary is lower, the company will also contribute less to the PF.

Less money is deposited every month for retirement.

If the basic salary is lower, the gratuity is also less.

The company increases allowances, which makes the salary appear higher.

Both PF and gratuity result in a loss in the future.

You feel full today, but your retirement fund remains weak.

What is the bonus and overtime problem?

Bonus and overtime are often calculated on the basic salary.

If the basic salary is lower, the bonus and overtime amount will also decrease.

This automatically reduces the company's total liability.

Why would you feel cheated?

When you understand this salary calculation, the truth comes out.

The package you thought was great isn't that beneficial.

In reality, it's the company's smart cost-cutting strategy.

How to deal with a retirement shock?

When you leave your job after 10-20 years, your gratuity amount will be much less than expected because it was calculated not on your in-hand salary, but on that same meager basic salary.

How the tax burden is felt.

Money received in the name of allowances is often not completely tax-free (except for HRA). Yes, heads like 'Special Allowance' are fully taxable. This means that the company saved on PF, but put the tax burden on you.

The Mathematics of Salary Slip: Profit Today or Loss Tomorrow?

What does the salary component look like to you? What actually happens?

Gross Salary appears large and attractive. It includes many allowances.

Basic Salary is often a small portion of it. PF and gratuity are determined.

Allowances (HRA, Special, etc.) increase in-hand. Most allowances are taxable.

The PF (12%) deduction seems low. Lowering the basic salary reduces PF savings.

The company's PF Contribution is not visible. The company contributes less.

Gratuitousness is not visible right now. The amount received upon retirement is less.

Bonus/Overtime expectations are high. Lowering the basic salary reduces the amount.

Overall Impact: The pocket feels full today, but the future fund becomes weak.

The whole thing in short: When negotiating for a new job, you should not just look at the 'Take Home' salary. Always insist that your basic salary be at least 50% of your CTC. Doing so provides you with greater benefits in the future. So, it's clear. While joining the job, keep the basic salary in mind and not the in-hand salary (Note- The news is based on general information)

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.