EPF wage ceiling is ₹25,000 a month from 17 September 2026, up from ₹15,000, per the Ministry of Labour and Employment. Figures on this page use the new ceiling. For the rules on employees already on your rolls, check the EPFO circulars page. What it means for employers
This guide covers basic salary, HRA, allowances and statutory contributions, with a CTC example you can use when drafting an offer letter.
Salary structures can look simple until PF, gratuity and wage rules start affecting the details. The structure below is a practical example of what many HR teams use in SMEs and growing companies. The figures reflect the position described on this page.
When companies hire and retain people, they have to balance labour and tax rules with a package that makes sense to the employee. Most structures use fixed pay, statutory components and some variable pay.
Basic salary is the foundation of compensation. In most private companies it sits at 40 to 50 percent of total CTC. Basic pay is fully taxable and forms the base for PF, gratuity and bonus calculations.
HRA is common for employees who live in rented accommodation. Employers often set it at:
An employee can claim HRA exemption when the conditions are met. The exempt amount is the lowest of:
DA is intended to offset inflation. It is common in government and public sector roles and less common in private companies. Where it is used, it is usually a smaller part of basic pay.
Allowances are often used to complete the salary structure. Common entries include:
Many companies include a performance-linked element, usually 5 to 30 percent of CTC. It is not guaranteed and depends on company and individual performance. Typically paid quarterly or annually.
The salary structure also has to account for the statutory rules that apply:
The 50 percent wage rule. Under the Code on Wages 2019, wages for statutory purposes must be at least 50 percent of total CTC. If allowances exceed 50 percent of CTC, the excess gets pulled back into the wage base for PF, gratuity and other statutory calculations.
One way a typical private sector employee on ₹7 lakh annual CTC might see their package broken down. Numbers are illustrative.
| Component | Approx. share of CTC | Notes |
|---|---|---|
| Basic Salary | 40 to 50% | Taxable, base for PF and gratuity |
| HRA | 40 to 50% of Basic | Partly tax-exempt under Section 10(13A) |
| Special Allowance | Balance of CTC | Fully taxable |
| Other Allowances | Nominal | LTA, education allowance and similar |
| Variable Pay / Bonus | 5 to 30% | Performance-linked, not guaranteed |
| Employer PF Contribution | 12% of Basic | Statutory, part of CTC |
| Gratuity / ESI | As applicable | Statutory benefits |
The exact split depends on company policy and the employee's location. These are common ranges, not statutory requirements unless noted otherwise.
Basic salary is often set at 40 to 50 percent of CTC. PF and gratuity are among the items that use basic as a base. A lower basic can increase take home pay in the short term, but it can also reduce PF accumulation and gratuity.
Exemption under Section 10(13A) is the lowest of three values: actual HRA received, rent paid minus 10 percent of basic, or 50 percent of basic for metro cities and 40 percent for non-metro.
CTC is the total annual cost to the company, including direct pay and statutory employer contributions like PF. In-hand is what the employee receives each month after employee PF, professional tax and TDS. The gap is usually 20 to 35 percent depending on structure.
HRA is not mandatory, but it is common. Companies in higher rent cities often give it more weight because of the way the exemption works. A salary structure can be built without it.
Basic salary in Indian private companies is typically set at 40 to 50 percent of CTC. Several statutory deductions including PF, gratuity and some allowances are calculated as percentages of basic salary. A lower basic reduces take-home deductions but also reduces PF accumulation and gratuity entitlement.
CTC is the total annual cost to the company including direct pay and statutory contributions like employer PF. In-hand salary is what the employee receives each month after employee PF, professional tax and TDS. The difference can be 20 to 35 percent of CTC depending on structure.
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Use these calculators and statutory guides alongside this page.