What percentage of salary should basic be in India?

Under the Code on Wages, basic + DA + retaining allowance must be at least 50% of total remuneration; if excluded allowances exceed 50%, the excess is treated as wages anyway. Most employers therefore fix basic at 50% of gross. There is no legal maximum, but a higher basic raises PF, gratuity and overtime costs.

What is the difference between CTC, gross and take-home?

Gross is the sum of all employee-side components such as basic, HRA and allowances. CTC is gross plus employer costs like employer PF, EDLI, admin charges, employer ESI and gratuity provision. Take-home is gross minus employee PF, employee ESI, professional tax and TDS. A ₹50,000 monthly CTC may produce a take-home of about ₹43,000.

Is HRA still useful in a salary structure under the new tax regime?

Not for tax. The new regime, the default for FY 2026-27, does not allow the HRA exemption, so HRA is fully taxable like special allowance. It remains common because some employees still choose the old regime and because it is an established component, but there is no need to set it at 40% or 50% of basic for tax reasons.

Does gratuity have to be shown in CTC?

It is not mandatory, but many employers include a gratuity provision of about 4.81% of basic + DA in CTC because it is a real future liability. If you show it, make clear in the offer letter that gratuity is payable only on completing the eligibility period under the Payment of Gratuity Act, so the employee does not expect it as a monthly payment.

Which salary components are considered for ESI and which for PF?

PF is computed on basic + DA + retaining allowance, up to the ₹25,000 ceiling. ESI coverage is tested on gross excluding overtime against the ₹21,000 ceiling, and the contribution is computed on gross including overtime. Annual bonus, gratuity and expense reimbursements are outside both. Keep both bases as derived fields in the payroll master.

Salary Structure in India: Components & 50% Basic Rule

The Components of an Indian Salary Structure

A salary structure is the list of components that add up to gross pay, plus the employer-side costs that make up cost to company (CTC). On the employee side the usual lines are basic salary, dearness allowance (DA, common in manufacturing and minimum-wage employments, rare in IT), house rent allowance (HRA), conveyance allowance, special allowance (the balancing figure), and sometimes leave travel allowance, medical allowance or a monthly statutory bonus component.

On the employer side sit employer PF (12% of basic + DA up to ₹25,000, plus 0.5% EDLI and 0.5% admin), employer ESI (3.25% of gross for employees within ₹21,000), gratuity provision (commonly 4.81% of basic + DA), and any insurance premium. CTC is gross plus these employer costs. Take-home is gross minus employee PF, employee ESI, professional tax and TDS. Employees see the CTC on the offer letter and the take-home in the bank, and much of HR's explaining time goes on the gap between the two.

Each component has a statutory job. Basic + DA drives PF, gratuity, overtime rate, and often leave encashment. Gross drives ESI and professional tax. Total income drives TDS. A structure that is tidy for one purpose can be expensive for another, which is why the design deserves an hour of thought rather than a copied template. The CTC and basic salary glossary entries define the terms precisely.

Employee side: basic, DA, HRA, conveyance, special allowance, optional LTA/medical/bonus
Employer side: PF 12% + 1%, ESI 3.25% (if covered), gratuity 4.81%, insurance
CTC = gross + employer costs; take-home = gross − employee PF − ESI − PT − TDS
Basic + DA drives PF, gratuity and overtime; gross drives ESI and PT

The Code on Wages 50% Rule and What It Did to Low-Basic Structures

Before the Labour Codes, a popular trick was a very low basic (30% or less of gross) with the rest in allowances. This shrank PF, gratuity and overtime liabilities. The Code on Wages 2019, effective 21 November 2025, defines wages as basic + DA + retaining allowance and then states that if the excluded components (HRA, conveyance, special allowance, bonus, overtime, commission and others) exceed 50% of total remuneration, the excess is added back to wages.

Take a ₹25,000 gross built as basic ₹8,000, HRA ₹4,000, special allowance ₹13,000. Excluded components total ₹17,000, which is ₹4,500 more than half of ₹25,000. Wages for the Code, and therefore for PF and gratuity under the Code on Social Security, become ₹8,000 + ₹4,500 = ₹12,500. The employer saved nothing by keeping basic at ₹8,000; it merely created a reconciliation problem between the payslip and the statutory computation.

The clean response is to set basic + DA at 50% of gross by design, so payslip components equal statutory wages and every downstream calculation uses the same number. Companies that leave old structures in place should run a monthly add-back computation and contribute on the recomputed figure. The 50% wages rule explainer walks through edge cases such as retaining allowance and commission.

Wages = basic + DA + retaining allowance, with excluded components capped at 50% of total
Excess allowances above 50% are added back to wages for PF and gratuity
Design basic + DA at 50% or more of gross to avoid a permanent reconciliation gap
Review pre-November-2025 structures now; inspections use the recomputed wage

Worked Structure 1: A ₹25,000 Per Month Employee

Suppose a store supervisor in Maharashtra is hired at ₹25,000 gross per month. A compliant structure: basic ₹12,500 (50%), HRA ₹5,000 (40% of basic), conveyance ₹1,600, special allowance ₹5,900. Total gross ₹25,000. Basic + DA equals exactly 50% of gross, so no add-back arises.

Employee deductions: PF 12% of ₹12,500 = ₹1,500. ESI does not apply because gross exceeds ₹21,000. Maharashtra professional tax at this level is ₹200 per month (₹300 in February) for men; women are exempt up to ₹25,000 gross. TDS is nil in the new regime because annual gross of ₹3,00,000 is below the ₹4 lakh basic exemption even before the ₹75,000 standard deduction. Take-home for a male employee: ₹25,000 − ₹1,500 − ₹200 = ₹23,300.

Employer costs: PF 12% = ₹1,500, EDLI 0.5% = ₹62.50, admin 0.5% = ₹62.50, gratuity provision 4.81% of ₹12,500 = ₹601.25. Monthly CTC = ₹25,000 + ₹1,625 + ₹601 = ₹27,226, or roughly ₹3.27 lakh per year. If the same employee had been structured with basic ₹8,000, the payslip would show employer PF of ₹960 and gratuity of ₹385, but the 50% rule would pull the statutory base back to ₹12,500 anyway.

Basic ₹12,500, HRA ₹5,000, conveyance ₹1,600, special ₹5,900 = gross ₹25,000
Employee PF ₹1,500; ESI nil (above ₹21,000); PT ₹200 in Maharashtra for men
Take-home ₹23,300; employer PF-related cost ₹1,625; gratuity provision ₹601
Monthly CTC about ₹27,226

Worked Structure 2: A ₹6 Lakh CTC Hire

Now design backwards from a ₹6 lakh annual CTC, which is ₹50,000 per month. Because employer PF and gratuity are computed on basic, you solve for gross so that gross plus employer costs equals ₹50,000. One workable answer: basic ₹23,000, HRA ₹9,200, conveyance ₹1,600, special allowance ₹12,100, giving gross ₹45,900. Basic is 50.1% of gross, so the 50% rule is satisfied.

Employer costs: PF 12% of ₹23,000 = ₹2,760, EDLI ₹115, admin ₹115, gratuity 4.81% of ₹23,000 = ₹1,106. Total employer costs ₹4,096. Gross ₹45,900 + ₹4,096 = ₹49,996 per month, or ₹5,99,952 per year, which rounds to the ₹6 lakh offer. The basic is below the ₹25,000 PF ceiling, so PF is on actual wages with no ceiling decision to record.

Employee side: PF ₹2,760; ESI nil; professional tax by state (₹200 in Karnataka or Maharashtra, nil in Delhi or Haryana). Annual gross ₹5,50,800 minus standard deduction ₹75,000 gives taxable income of ₹4,75,800; tax of 5% on the ₹75,800 above ₹4 lakh is ₹3,790, fully absorbed by the section 87A rebate, so TDS is nil. Monthly take-home is about ₹42,940 in a PT state and ₹43,140 in a non-PT state. Test other offers with the CTC to in-hand salary calculator.

Basic ₹23,000, HRA ₹9,200, conveyance ₹1,600, special ₹12,100 = gross ₹45,900
Employer PF + EDLI + admin ₹2,990; gratuity provision ₹1,106
Monthly CTC ₹49,996 ≈ ₹6 lakh per year
Take-home about ₹42,940 to ₹43,140 depending on state PT; TDS nil under the new regime

Tax Angle Under the New Regime

Most salary-structuring folklore comes from the old tax regime, where HRA exemption, LTA exemption and section 80C planning justified elaborate break-ups. Under the new regime, which is the default for FY 2026-27, HRA and LTA exemptions are not available and most allowances are simply taxable income. The standard deduction of ₹75,000 and the section 87A rebate (so that taxable income up to ₹12 lakh, or ₹12.75 lakh gross for salaried employees, pays nil tax) do the heavy lifting instead.

The practical consequence is that HRA no longer needs to be 40% or 50% of basic for tax reasons. It survives as a component mainly because of habit and because some employees still opt for the old regime. Conveyance and medical allowance likewise carry no exemption in the new regime. Reimbursements of actual business expenses against bills remain non-taxable, but they are not salary and should not be in the structure.

Employer PF up to 12% of the ceiling and gratuity provision are not taxed in the employee's hands at the time of contribution, so shifting money from special allowance into basic (and thereby into PF and gratuity) is one of the few structural moves that still changes the employee's tax position under the new regime. Keep in mind it also raises employer cost for the same CTC.

New regime: HRA, LTA, conveyance and most allowances are fully taxable
Standard deduction ₹75,000 and 87A rebate mean nil tax up to ₹12.75 lakh gross
Employer PF and gratuity remain untaxed on contribution; higher basic shifts value there
Actual-expense reimbursements against bills are not salary

How the Structure Changes PF, ESI and Gratuity Cost

For a given gross, moving ₹1,000 from special allowance to basic increases employer PF by ₹120 (if under the ₹25,000 ceiling), EDLI and admin by ₹10, and gratuity provision by ₹48, about ₹178 a month or ₹2,136 a year per employee. It reduces the employee's take-home by ₹120 (their PF share) but adds ₹240 to their retirement savings. For a 200-person workforce, a ₹2,000 shift into basic costs the employer roughly ₹8.5 lakh a year.

Gross, not basic, decides ESI. An employee at ₹20,800 gross is covered; at ₹21,200 they are not, and the employer's 3.25% (₹676) disappears while the employee loses medical cover worth far more. Salary revisions that nudge people just over ₹21,000 should be discussed with the employee rather than done silently, because the change in benefit is real.

Overtime rate is basic + DA ÷ 26 ÷ 8 × 2 in most Indian practice, so basic also decides how expensive extra hours are. A security agency with guards on 12-hour posts should model overtime cost at the design stage; the overtime calculation formula guide shows how a low-basic structure interacts with the 50% rule and double-rate overtime.

Each ₹1,000 moved into basic adds about ₹178 per month to employer cost
ESI is decided by gross; crossing ₹21,000 removes cover and the 3.25% cost
Basic + DA sets the overtime rate, so it matters most for 12-hour operations
Model cost before offering; do not discover it at the first payroll run

Documenting the Structure in Offers and the Payroll Master

The offer letter should list every component with a monthly and annual figure, state that PF is on basic + DA, name whether the employer contributes on the statutory ceiling or full wages, and separate employer costs from gross so the employee does not read CTC as salary. Under the Code on Wages, employers must also issue wage slips, and a structure that matches the slip line for line removes most payroll queries.

In the payroll master, store components as rules rather than typed numbers: basic as 50% of gross, HRA as a percentage of basic, conveyance as a fixed amount, special allowance as the balancing figure. Then a revision means changing one gross figure. Store the statutory flags alongside: PF applicable, PF on ceiling or actual, EPS eligible, ESI applicable for the current period, PT state.

Attend Mitra's payroll module holds these components and statutory settings per employee, derives LOP and overtime from attendance, and generates payslip PDFs, the salary register and a bank transfer file. It does not file PF, ESI or TDS returns or issue Form 16; those remain with your accountant or filing tool. If you want the structure to appear correctly on the payslip, the salary slip format guide shows the expected layout.

Offer letter: every component monthly and annually, PF base and ceiling choice stated
Payroll master: components as rules, statutory flags per employee
Wage slips are mandatory under the Code on Wages; match them to the structure
Payroll software prepares registers and payslips; statutory filing stays with you

Salary Structure in India: Components, the 50% Basic Rule and Two Worked Break-Ups