Salary Structure in India: Basic, HRA, Allowances and Employer Contributions
A salary structure splits your CTC into components such as basic pay, HRA, special allowance and employer contributions. Two offers with the same CTC can pay different monthly amounts, because each component is treated differently for PF, tax and gratuity. Basic is usually 40 to 50 percent of CTC and drives PF and gratuity.
A salary structure is the way your total cost-to-company (CTC) is divided into components. Two offers with the same CTC can put very different amounts in your bank account each month, because every component is treated differently for PF, tax and gratuity.
The main components
- ✓Basic salary: The fixed core of pay, usually 40 to 50 percent of CTC. PF, gratuity and leave encashment are calculated on it, so it sets the base for many other numbers.
- ✓House Rent Allowance (HRA): Paid to help with rent, usually 40 percent of basic in non-metro cities and 50 percent in metros. It is partly exempt from tax under the old regime if you actually pay rent.
- ✓Special allowance: The balancing figure that makes the total reach CTC. It is fully taxable.
- ✓Conveyance, medical and other allowances: Employer-specific items that may or may not carry a tax exemption, depending on the tax regime.
- ✓Variable pay or bonus: Linked to company or individual performance and paid on a different cycle.
What sits outside your monthly pay
Some parts of CTC never reach your bank account every month. Employer contribution to the Provident Fund, gratuity provision, group insurance premiums and sometimes a retention bonus are counted in CTC but paid out later or paid to a third party. This is why a CTC of ₹12 lakh does not mean ₹1 lakh a month in hand.
A worked example
Take a monthly CTC of ₹60,000. A sensible split might be basic ₹24,000, HRA ₹12,000, special allowance ₹19,466, employer PF ₹2,880 (12 percent of basic), gratuity provision ₹1,154 (about 4.81 percent of basic) and a group insurance premium of ₹500. Those add up to exactly ₹60,000. The employee also pays 12 percent of basic, ₹2,880, as their own PF, so the net figure is lower than the gross.
Why the split matters
- ✓Higher basic means higher PF and gratuity, which is good for long-term savings but lowers monthly take-home.
- ✓Lower basic raises take-home now but reduces gratuity and retirement corpus.
- ✓A well-designed HRA component can reduce tax for employees who pay rent, but only under the old tax regime.
How employers should design it
Keep the structure simple and consistent across grades. Document the logic so that a new joiner can reproduce the numbers in the offer letter. Check the structure against the wage definition in the labour codes, because if allowances exceed 50 percent of total remuneration, the excess may be treated as wages for statutory purposes. Finally, make sure your payroll system calculates every component by formula so that a salary revision does not mean retyping a spreadsheet.
The best salary structure is the one an employee can explain to their family after reading the offer once.
Quick checklist
- ✓Is basic at a defensible share of CTC?
- ✓Are employer contributions shown separately from monthly pay?
- ✓Does the offer letter show both annual and monthly figures?
- ✓Can the structure be rebuilt by formula in your HRMS?
Rules and exemption limits change, so confirm current figures with your chartered accountant before finalising any structure.
Written by
HR Manager, Airwix Technologies (Sleet)
Nihit Dobariya is the HR Manager at Airwix Technologies in Ahmedabad, where he runs HR and payroll for the team behind Sleet. He writes about payroll, PF and ESIC, professional tax, the labour codes and everyday HR practice for Indian employers, and checks each rule against the official notification before it is published.
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