Salary structure in India is split into two halves: what you earn and what gets deducted. The earning side includes Basic Salary (minimum 50% of CTC under the 2026 wage codes), HRA, DA, and Special Allowance. The deduction side covers PF (12% from you, 12% from your employer), ESIC, TDS, and Professional Tax. Your in-hand pay is what’s left after all these deductions, and it’s typically 12-25% less than the CTC your company quotes.
That gap catches people off guard. A garment factory owner in Surat got an EPFO notice in January 2026 because his basic was set at just 28% of gross. The new wage codes need it at 50%. That’s not a minor paperwork issue. It means back-paying the PF difference for every single employee, plus penalties.
Key Takeaways
- Salary structure in India has two parts: earnings (Basic, HRA, DA, allowances) and deductions (PF, ESIC, TDS, professional tax)
- Under the 2026 wage codes, basic salary must be at least 50% of total CTC (Code on Wages, 2019)
- PF is 12% from the employee and 12% from the employer, calculated on basic plus DA
- EPFO added a record 20.06 lakh net members in May 2025 alone (PIB, 2025)
What Are the Main Components of Salary Structure in India?
Think of your salary in two buckets. Bucket one is what you earn: Basic Salary, House Rent Allowance (HRA), Dearness Allowance (DA), Special Allowance, and smaller components like conveyance. Bucket two is what gets taken out: Provident Fund (PF), Employee State Insurance (ESIC), income tax (TDS), and Professional Tax.
| Component | Type | Typical % of CTC | Who Decides |
|---|---|---|---|
| Basic Salary | Earning | 40-50% | Employer (min 50% under new wage codes) |
| House Rent Allowance (HRA) | Earning | 40-50% of Basic | Employer |
| Dearness Allowance (DA) | Earning | 3-5% of Basic | Employer (mandatory in some sectors) |
| Special Allowance | Earning | Balancing figure | Employer |
| Employer PF Contribution | Deduction from CTC | 12% of Basic + DA | Statutory |
| Employee PF Contribution | Deduction from Gross | 12% of Basic + DA | Statutory |
| ESIC (Employee Share) | Deduction from Gross | 0.75% of Gross | Statutory |
| ESIC (Employer Share) | Deduction from CTC | 3.25% of Gross | Statutory |
| Professional Tax | Deduction from Gross | Up to ₹200/month (state-wise) | State Government |
| TDS (Income Tax) | Deduction from Gross | As per tax slab | Central Government |
| Gratuity | Employer cost in CTC | 4.81% of Basic | Statutory |
CTC isn’t what you take home. Your in-hand pay is CTC minus employer’s costs (their PF share, ESIC, gratuity) and then minus your own deductions (your PF share, ESIC, TDS, PT). The gap can be anywhere from 12% to 25%.
What we see at Petpooja: Across 30,000+ Payroll clients, the single biggest confusion is CTC vs gross. Business owners in Ahmedabad, Pune, and Hyderabad quote CTC in offer letters, and then the new joiner gets upset on the 7th of the month when their bank credit is ₹8,000 less than expected.
How Does Basic Salary Work, and Why Does the 50% Rule Matter?
Everything in your salary slip traces back to basic. HRA? Percentage of basic. PF? Calculated on basic. Gratuity? Also on basic. So if a company keeps basic artificially low (say 25-30% of CTC), they’re reducing their PF liability and gratuity payout. Smart for cash flow. Bad for the employee’s retirement.
That’s why the Code on Wages 2019 stepped in. Indian states started enforcing this from November 2025: basic wages (basic + DA + retaining allowance) can’t be less than 50% of total remuneration, as defined in the Code on Wages 2019 referenced above.
What does restructuring look like? Here’s a comparison for someone earning ₹25,000 per month:
| Component | Before (Basic at 40%) | After (Basic at 50%) |
|---|---|---|
| Gross Monthly CTC | ₹25,000 | ₹25,000 |
| Basic Salary | ₹10,000 | ₹12,500 |
| Employee PF (12%) | ₹1,200 | ₹1,500 |
| Employer PF (12%) | ₹1,200 | ₹1,500 |
| Monthly take-home reduction | — | ₹300 less |
₹300 a month doesn’t sound like much. But scale that to a diagnostic lab in Pune with 50 employees and the employer’s additional PF outflow alone jumps by ₹15,000 per month. That’s ₹1,80,000 extra per year.
The other side: a textile mill worker in Tiruppur who’s been there eight years will see their gratuity climb from roughly ₹69,231 to ₹1,15,385. Nearly ₹46,000 more when they leave.
How to Calculate In-Hand Salary from CTC
CTC is what your employer spends on you. Gross salary is CTC minus employer’s contributions (their PF, ESIC, gratuity). In-hand is gross minus your deductions (your PF, ESIC, TDS, PT). Here’s how that works for a ₹6,00,000 annual CTC at a retail chain in Jaipur:
| Item | Annual (₹) | Monthly (₹) |
|---|---|---|
| CTC | 6,00,000 | 50,000 |
| Less: Employer PF (12% of Basic) | 36,000 | 3,000 |
| Less: Employer ESIC (3.25% of Gross) | Not applicable (gross > ₹21,000) | — |
| Less: Gratuity (4.81% of Basic) | 14,430 | 1,203 |
| Gross Salary | 5,49,570 | 45,797 |
| Less: Employee PF (12% of Basic) | 36,000 | 3,000 |
| Less: Professional Tax (Maharashtra) | 2,400 | 200 |
| Less: TDS (estimated, new regime) | 0 (income under ₹12L is tax-free) | 0 |
| In-Hand Salary | 5,11,170 | 42,597 |
₹50,000 CTC. ₹42,600 in your account. About 15% gone to PF, gratuity, and PT. ESIC didn’t apply here because gross is above ₹21,000 (ESIC – Contribution Rates, 2026).
How Do PF, ESIC, and Professional Tax Work?
PF is usually the fattest deduction on your salary slip. Both you and your employer put in 12% of basic + DA towards EPFO. It’s mandatory for establishments with 20 or more employees.
The employer’s 12% actually splits three ways:
| Contribution | Rate | Goes Into |
|---|---|---|
| Employee share | 12% of Basic + DA | EPF account |
| Employer share (EPF) | 3.67% of Basic + DA | EPF account |
| Employer share (EPS) | 8.33% of Basic + DA | Pension scheme |
| Admin charges | 0.50% | EDLI + admin |
There’s also a capping question. The statutory wage ceiling for PF is ₹15,000 per month. If basic is higher, the employer can calculate PF on actual basic (uncapped) or just on ₹15,000 (capped). A warehouse supervisor in Bhiwandi pulling ₹22,000 basic saves ₹840 per month under the capped method. That’s ₹10,080 more in pocket per year, but ₹10,080 less in retirement.
ESIC gives medical and cash benefits to employees earning ₹21,000 gross or less, in establishments with 10+ workers. Employee pays 0.75%, employer pays 3.25% of gross. One thing HR teams miss: ESIC works in six-month cycles. If someone was covered at the start of a cycle, they stay covered for the full six months even if a raise pushes them past the threshold.
Professional Tax is state-level. Delhi, UP, and Haryana don’t charge it. Maharashtra, Karnataka, Tamil Nadu, and others do (Income Tax Department – Salary Deductions, 2026). The cap is ₹2,500 per year. Karnataka charges ₹200/month for 11 months and ₹300 in February. Tamil Nadu collects it half-yearly in August and January.
Multi-state headache: If you run a coaching centre chain with branches in Pune, Bangalore, and Delhi, your Pune staff pay ₹200/month PT, Bangalore staff pay ₹200/month (₹300 in February), and Delhi staff pay nothing. Three different rules for the same company.
What Are the Income Tax Slabs for 2026?
TDS is your income tax, deducted by your employer every month. Under the new regime for FY 2025-26, income up to ₹12 lakh is tax-free because of the Section 87A rebate. There’s also a ₹75,000 standard deduction for salaried folks (ClearTax, 2026).
| Annual Income | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
The old regime is still available if you’ve got heavy deductions (80C, HRA, home loan interest). For an operations manager at a QSR chain in Chennai earning ₹14 lakh CTC, the new regime works out to roughly ₹80,000 annual tax. The old regime with full 80C and HRA claims could bring it down to ₹60,000. The right choice depends on how many deductions you can actually claim.
How Do the 2026 Labour Codes Change Your Salary Structure?
India consolidated 29 old labour laws into four new codes. States started enforcing them from November 2025. The biggest impact: “wages” now has a single definition across all four codes. Wages = basic + DA + retaining allowance, and this must be at least 50% of CTC.
Two other changes that hit pay structure directly:
Full and final settlement now has a deadline. Two working days. Not two weeks, not “we’ll process it next payroll cycle.” The old 30-45 day norm is gone. If you hire contract staff for a 14-month project at a warehouse in Manesar, their unpaid salary, leave encashment, and bonus must be settled within 48 hours of exit.
Contract workers get gratuity after 1 year. This is a big shift. Earlier, you needed five years of continuous service. Fixed-term employees now qualify after just one year.
What we’ve observed: Among Petpooja Payroll clients who restructured in early 2026, most increased basic from 35% to 50% and absorbed the higher PF cost into their compensation budget rather than cutting take-home. Companies around Chakan and Manesar moved fastest because their EPFO offices were the first to flag non-compliant structures.
For more on compliance changes, read our salary management system guide for small businesses.
How Does Payroll Software Handle All of This?
Doing salary for even 15 people on Excel means tracking PF caps, ESIC eligibility, TDS slabs, professional tax by state, leave deductions, and overtime. One wrong formula and someone’s salary is off. That’s a phone call to HR nobody wants on the 8th of the month.
Petpooja Payroll takes a different approach. You set up a salary template once (basic at 50%, HRA at 40% of basic, PF capped or uncapped, ESIC auto-detected). Assign it to a department. Every new hire gets the right structure from day one. Statutory calculations, salary slips on WhatsApp, and multi-state PT rules all run on their own. Pricing is flat: ₹9,000 + GST per year for new subscriptions, ₹4,000 + GST for renewals. Doesn’t matter if you have 8 employees or 80.
Still on spreadsheets? Our guide on switching from Excel to payroll software covers the migration step by step. You can also read about common payroll mistakes to avoid and browse our top 10 payroll software comparison.
Conclusion
Salary structure in India boils down to earnings (Basic, HRA, DA, special allowance) and deductions (PF, ESIC, TDS, professional tax). The 2026 labour codes pushed basic to a minimum of 50% of CTC, which is good for retirement savings but squeezes take-home pay a bit.
- Every business with 10+ staff needs to check if their basic meets the 50% threshold
- PF (12% + 12%) and ESIC (0.75% + 3.25%) aren’t optional for eligible employees
- The new tax regime makes income up to ₹12 lakh tax-free
- Professional tax varies by state, and multi-location businesses can’t apply one state’s rules to another
If you’re still doing this on Excel, Petpooja Payroll handles salary structure setup, statutory calculations, and multi-state compliance at ₹9,000 + GST per year.
Frequently Asked Questions
At least 50%. That’s the rule under the Code on Wages 2019, enforced from November 2025. Before this, many companies kept basic at 25-40% to save on PF and gratuity costs. If your basic is still below 50%, your employer needs to restructure. There’s no workaround.
Subtract employer PF (12% of basic), employer ESIC (3.25% of gross, if applicable), and gratuity (4.81% of basic) from CTC to get gross. Then subtract employee PF, employee ESIC, professional tax, and TDS to get in-hand. For a ₹6 lakh CTC, in-hand is roughly ₹42,600 per month.
Two conditions: the establishment has 10+ employees, and the individual’s gross salary is ₹21,000 per month or less. Employee contributes 0.75%, employer 3.25% of gross. Coverage continues for the full six-month cycle even if salary crosses the threshold mid-way.
Eighteen states levy PT, including Maharashtra, Karnataka, Tamil Nadu, West Bengal, Gujarat, and Telangana. States like Delhi, UP, Haryana, Rajasthan, and Punjab don’t charge it. The cap is ₹2,500 per year across all states, as per the Saral.pro data referenced earlier.
