7 Salary Structure Questions Every Indian Must Know

Your salary in India is built from basic pay (35 to 50% of CTC), HRA, EPF at 12% from both sides, gratuity provisioning by the employer, and a flat Rs 75,000 standard deduction under the new tax regime. CTC is not your in-hand number. Subtract your EPF share, Professional Tax, TDS, and any other deductions from gross salary to get what actually hits your bank account.

HR teams at Indian SMEs hear the same seven salary questions almost every month. We have put the answers here with the correct FY 2025-26 and 2026-27 numbers so you can point your team to this page instead of explaining it again on WhatsApp.

Key Takeaways

• Basic pay drives everything else in an Indian salary structure, from HRA to EPF to gratuity
• The gap between CTC and in-hand salary exists because CTC includes employer-only costs (employer EPF, gratuity, insurance) that never enter your account
• Standard deduction is Rs 75,000 under the new regime from FY 2025-26; Rs 50,000 under the old regime
• Gratuity requires five years, with three exceptions: death, disability, and fixed-term contracts after one year
• Form 16 is for salary TDS; Form 16A is for non-salary TDS (bank interest, rent, freelance payments)

1. What goes into a salary structure?

Three buckets. Every Indian payslip, whether the company is a pharmaceutical distributor in Nagpur or a garment exporter in Tirupur, splits into these:

Fixed pay is the portion that does not change month to month. Basic, HRA, and special allowance fall here. Most companies set basic somewhere between 35% and 50% of CTC.

The exact percentage matters because EPF, gratuity, and HRA exemptions are all calculated on basic. A company that keeps basic at 35% reduces its EPF liability but also reduces the employee’s retirement corpus. One that sets it at 50% does the opposite.

Variable pay swings with performance. Quarterly incentives, annual bonuses, commissions on revenue. A regional sales head at an FMCG distributor in Indore might have 25% of CTC sitting in this bucket, while the warehouse supervisor at the same company might have none.

Statutory withholdings are the third bucket, and nobody gets to skip them:

How these components connect under labour law gets complicated fast. This guide covers the legal side: salary structure as per Indian labour law.

2. Why does your CTC never match your in-hand salary?

Rs 6,00,000 CTC does not mean Rs 50,000 in your account every month. It never does. Here is where the money goes, using a hypothetical employee based in Ahmedabad as an example:

The employee’s provident fund withholding alone pulls Rs 2,400 out of gross every month. Gujarat charges zero Professional Tax, so that line is blank here. TDS depends on what investments the employee declares under 80C and 80D.

What lands in the account? Roughly Rs 34,640 before TDS. That is a 30% gap between CTC and in-hand, which is exactly the shock new joiners get when they see their first payslip.

Run your own split on the free in-hand salary calculator.

3. How does the standard deduction work?

You don’t file for it. That is the whole point.

The Income Tax Department gives every salaried person a flat Rs 75,000 deduction under the new tax regime starting FY 2025-26. Under the old regime, it stays at Rs 50,000. No receipts, no proof, no HR approval needed. It gets applied before your taxable income is calculated.

This replaced the old medical allowance (Rs 15,000) and transport allowance (Rs 19,200) that companies used to structure separately. The government clubbed them into one flat number in 2018, then bumped it to Rs 75,000 in the July 2024 budget.

Practical implication: anyone earning Rs 12,75,000 or less under the new regime pays zero income tax. That is the Rs 12,00,000 slab ceiling plus the Rs 75,000 standard deduction.

4. Where does your EPF money actually go?

Both you and your company deposit 12% of basic plus DA every month. But the company’s 12% gets split before it reaches your account.

8.33% of that goes to the Employee Pension Scheme (EPS), capped at Rs 1,250 per month based on a Rs 15,000 wage ceiling. If your basic is Rs 30,000, the company still puts only Rs 1,250 into EPS, not Rs 2,499.

The remaining portion from the company’s side (which works out to more than 3.67% when basic exceeds Rs 15,000) goes into your EPF account.

Your own 12% goes entirely to EPF. No split.

Interest rate for FY 2025-26 is 8.25% per annum.

A common mix-up we have seen across Petpooja’s Payroll clients: people think the Rs 15,000 ceiling means EPF contributions stop once basic crosses that number. They do not stop. The ceiling only caps the pension portion. The provident fund contribution keeps running at 12% of actual basic, no upper limit.

5. Gratuity: the five-year question

Five years of continuous service with the same employer. That is the baseline rule under the Payment of Gratuity Act, 1972. The Act covers every establishment with 10 or more employees.

Formula: (last drawn basic + DA) x 15 x completed years of service / 26.

But three situations bypass the five-year requirement entirely:

Death or permanent disability. The nominee receives gratuity regardless of tenure, even if the employee worked for three months.

The 240-day interpretation. Indian courts have held that an employee who completes four years and 240 working days qualifies. This protects people who fall just short of five years.

Fixed-term contracts. Under the new labour code framework, fixed-term employees get pro-rata gratuity after just one year of continuous service.

The tax-free ceiling on gratuity is Rs 20,00,000 for non-government employees. Anything above that is taxable. For detailed math, see how to calculate gratuity for Indian employees, or plug in your own numbers on the free gratuity calculator.

6. What is the difference between Form 16 and Form 16A?

Short version: Form 16 is for salary. Form 16A is for everything else.

Your employer issues Form 16 once a year, covering all TDS deducted from your monthly salary. It shows total salary paid, deductions claimed (80C, 80D, HRA, standard deduction), and the net tax deposited with the government. The deadline for employers to issue it is 15th June after the financial year ends. For a section-by-section walkthrough, this post covers it in detail: Form 16 explained.

Form 16A comes from banks, companies, or tenants who deducted TDS on non-salary payments. Your bank gives you one for FD interest above Rs 40,000. A company gives you one if they paid you as a freelancer or consultant and withheld TDS under Section 194J. A tenant who pays rent above Rs 50,000 per month issues one under Section 194-IB.

Both documents feed into your ITR filing. You need them to reconcile the TDS credits showing in your Form 26AS with the actual deductions made.

7. Payday lands on a Sunday. Now what?

Two ways companies handle this, and neither is mandated by law.

Most businesses credit a day or two early. A logistics company in Bhiwandi that pays on the 1st of every month will push the NEFT batch to the 30th or 31st when the 1st falls on a bank holiday. This is the more common approach across our 30,000+ Payroll clients because a one-day delay in salary credit generates more HR queries than almost any other payroll issue.

Other companies stick to the scheduled date and let the bank process it when it reopens. Staff see a one-day lag, sometimes two if a long weekend lines up with a state holiday. October is the worst month for this in Gujarat; between Navratri and Diwali, bank holidays stack up and the payment window narrows.

If your employees regularly ping HR about payslip access, leave balances, and salary dates, an employee self-service portal cuts those queries down because everyone can check their own data without waiting for a reply.

Conclusion

These seven questions account for most of the salary-related back-and-forth between employees and HR at Indian SMEs. The specific numbers shift with each Union Budget (standard deduction moved from Rs 50,000 to Rs 75,000 in July 2024, for instance), but the underlying structure has not changed in years. Basic drives the percentages for EPF, HRA, and gratuity. CTC will always be higher than in-hand. And someone will always ask about gratuity on their fourth anniversary.

Build your company’s breakup using the CTC salary structure calculator template. For teams tired of fielding these questions manually, Petpooja Payroll puts payslips, tax breakups, and leave data on an employee app so your staff can look things up without calling HR.

Frequently Asked Questions