Salary Structure in India: CTC Breakup Guide

What is salary structure in India?

Salary structure in India is the framework that splits an employee's total cost to company (CTC) into fixed pay, allowances, employer statutory contributions, and deductions. It is not a single figure. CTC is what you budget; what lands in the employee's bank account is materially lower once EPF, tax, and professional tax come out.

We have built hundreds of India offer letters at Wisemonk, and the first thing every US or UK hiring manager learns is that the CTC they quote and the take-home the candidate expects are two different numbers. CTC bundles in employer costs the employee never sees in hand, such as your share of the provident fund and gratuity accrual.

Getting the structure right matters for three reasons: compliance with India's payroll rules, the employee's tax outcome, and how competitive your offer feels. A poorly split CTC can leave a candidate with a lower take-home than a rival offer at the same headline number.

Think of CTC as the ceiling and take-home as the floor, with allowances and contributions filling the space between. The rest of this guide walks through each layer, a reconciled sample breakup, and how to design a structure that is both compliant and tax-efficient. For the full paycheck math, see our guide to take-home pay in India.

How does CTC differ from gross and net salary in India?

CTC is the total annual cost to the employer, including your EPF and gratuity contributions. Gross salary is pay before deductions (basic plus allowances) and excludes employer contributions. Net or take-home salary is what reaches the bank after employee EPF, professional tax, and TDS come out. Each number is smaller than the last.

These three terms trip up almost every first-time employer in India. The gap between CTC and gross is the employer's own statutory contributions; the gap between gross and net is the employee's deductions.

We keep the full gross-to-net calculation on a dedicated page so this guide stays focused on structure. For a worked payslip that walks CTC all the way down to monthly in-hand, read our take-home pay in India guide, or run a quick estimate with our salary calculator.

What are the components of a salary structure in India?

An Indian salary structure has five pay components (basic, HRA, special allowance, LTA, and variable pay), a set of employer statutory contributions (EPF, ESI, gratuity, EDLI), and employee deductions (EPF, TDS, professional tax). The pay components make up gross salary; contributions and deductions bridge CTC and net take-home.

Below is each layer in the order it appears on an Indian offer letter and payslip. For a broader view across payroll inputs, see our explainer on what are payroll components.

Basic salary

Basic salary is the foundation of the whole structure. Under the Code on Wages, basic plus dearness allowance (DA) must be at least 50% of CTC. It is also the base for EPF and gratuity, so its size drives most statutory costs. A higher basic means higher retirement contributions and a slightly lower monthly take-home.

House rent allowance (HRA)

HRA is an allowance toward rent, typically set at 40% of basic for non-metro cities and 50% of basic for metros (Delhi, Mumbai, Kolkata, Chennai). It is tax-exempt under the old regime when the employee submits rent proof, subject to limits. Under the new tax regime, HRA is not exempt, so its benefit depends on which regime the employee picks.

Special allowance

Special allowance is the balancing figure. After basic, HRA, LTA, and any reimbursements are set, whatever remains of gross salary is assigned here. It is fully taxable with no exemptions, which is why efficient structures keep it as small as the other components allow.

Leave travel allowance (LTA)

LTA reimburses domestic travel costs and is tax-exempt under the old regime when the employee submits valid travel proof, subject to conditions (two journeys in a block of four years). Like HRA, its exemption does not apply under the new regime. It is a modest but useful lever for old-regime employees.

Variable pay

Variable pay is performance-linked compensation (bonuses, incentives, or commissions), usually 5% to 20% of CTC depending on the role. It is paid on results rather than guaranteed, so it sits apart from fixed pay in the structure. Sales and leadership roles carry a larger share.

We treat variable pay in depth elsewhere, including how to set targets and payout timing. See our full guide to variable pay in India for that detail.

Employer statutory contributions

Employer statutory contributions are costs you pay on top of gross salary, which is why they sit inside CTC but never in the employee's take-home. They are the main reason CTC exceeds gross.

Employees' Provident Fund (EPF)

The employer contributes 12% of basic to EPF. Of that, 8.33% goes to the Employees' Pension Scheme (EPS) on the ₹25,000 wage cap, and the remaining 3.67% goes to the EPF account. EPF is broadly India's equivalent of a 401(k) and is mandatory for establishments with 20 or more employees.

Employees' State Insurance (ESI)

ESI is a health and social-security scheme. The employer contributes 3.25% and the employee 0.75%, and it applies only to employees earning ₹21,000 per month or less. Most salaried professionals a global employer hires sit above this threshold, so ESI often does not apply.

Gratuity

Gratuity is a lump sum paid for long service, accrued at about 4.81% of basic per year. It vests after five years of continuous service; fixed-term employees earn it pro-rata after one year. See our related guide on severance pay in India for how gratuity fits end-of-service costs.

Employees' Deposit Linked Insurance (EDLI)

EDLI is a life-insurance benefit linked to EPF membership. The employer contributes 0.5% of wages, capped at the ₹25,000 wage ceiling. It is a small cost but a mandatory one wherever EPF applies.

Employee deductions

Employee deductions are amounts taken out of gross salary to reach net take-home. They are the employee's own contributions and taxes, not extra employer costs.

• Employee EPF: 12% of basic. The statutory obligation caps at ₹3,000 a month, which is 12% of the ₹25,000 ceiling, though many employers apply it to full basic, as the sample below does.
• TDS (tax deducted at source): income tax withheld monthly, based on the employee's regime and declarations.
• Professional tax: a state levy of about ₹200 per month, capped at ₹2,500 per year, and not levied by every state.

What does a salary breakup look like in practice?

Here is a reconciled breakup of a ₹15,00,000 (about $15,600) CTC under the new tax regime. Basic sits at the mandated 50%, the components sum cleanly to gross, employer contributions bridge gross to CTC, and net take-home lands at roughly 80% of CTC. The employer's EPF and gratuity are inside CTC but never in the employee's hand.

To put the currency in context, this ₹15,00,000 CTC is about $15,600, and the net take-home of roughly ₹12,03,725 is about $12,550. Exchange rates move, so treat conversions as approximate (about ₹96 to $1 as of September 2026).

How does the breakup shift by CTC level?

The 50% basic rule holds across pay bands, but take-home as a share of CTC falls as income rises through the tax slabs. The table below is illustrative: exact figures depend on regime choice, declarations, and state professional tax. It shows the direction of travel rather than a promise for any individual.

The pattern is simple: lower earners keep a larger share because more of their income falls in nil or low-tax bands, while higher earners lose more to progressive slabs. Our employee cost calculator helps you model the full employer cost at any band before you make an offer.

What do employer contributions add to your cost in India?

Employer contributions sit on top of gross salary and are the reason CTC exceeds gross. For a professional hire they run roughly 5% to 9% of gross, and where you land in that band depends on one decision most global employers do not realise they are making: whether you contribute provident fund on the capped statutory wage or on full basic.

The statutory floor is fixed and modest. Employer EPF is 12% of wages up to the ₹25,000 monthly ceiling, raised from ₹15,000 with effect from 17 September 2026. That caps the employer's statutory EPF obligation at ₹3,000 a month, or ₹36,000 a year, no matter how much the employee earns above it. EDLI adds about ₹1,500 a year on the same capped basis.

Many employers contribute on full basic instead, and the sample breakup above does exactly that. On a ₹15,00,000 CTC with basic at ₹7,50,000, contributing on full basic costs ₹90,000 a year against a statutory floor of ₹36,000. Both are compliant. The difference is roughly ₹54,000 a year per employee, or about $560.

Because the statutory cap is flat and gratuity accrues on basic, the employer load falls as a share of pay as salary rises. ESI drops out entirely above ₹21,000 a month in wages, which covers almost every professional hire a global company makes. Budget the higher figure if you want to match what established Indian employers typically offer, and the lower one if you are matching the statutory minimum. The structure below is where that choice gets locked in.

How do you design a compliant, tax-efficient salary structure in India?

Design the structure in a fixed order so it stays compliant and works for the employee's tax outcome. Start with the mandated basic, then layer HRA, LTA, and reimbursements, and use special allowance only as the residual. The goal is to meet the Code on Wages floor while keeping the employee's take-home competitive.

Here is the build order we use on Wisemonk offer letters:

1. Set basic plus DA at 50% of CTC first: this satisfies the Code on Wages floor and fixes your EPF and gratuity base before anything else moves.
2. Set HRA by city: 50% of basic for metros and 40% for non-metros, so old-regime employees can claim the exemption with rent proof.
3. Add LTA and permitted reimbursements: modest, proof-backed items that carry old-regime exemptions and reduce taxable pay.
4. Allocate the residual as special allowance: whatever remains of gross after the steps above goes here, fully taxable, as the balancing figure.
5. Keep variable pay role-appropriate: size it to the role rather than padding fixed pay, and see variable pay in India for target setting.
6. Add employer NPS where it helps: employer NPS contributions are tax-free up to 14% of basic under the new regime, a useful lever for senior hires.

One design note on regime choice: the new tax regime is the default and rewards a simpler structure, while the old regime rewards HRA, LTA, and Section 80C deductions. Let the candidate pick their regime, then confirm the structure still meets the 50% basic rule either way. For how this feeds the wider payroll run, see our payroll process in 8 steps and managed payroll service.

How do India's Labour Codes affect salary structure?

India's four Labour Codes are in force as of November 21, 2025, with state rules rolling out from April 1, 2026. The change that matters most for salary structure is the Code on Wages rule that basic plus DA must be at least 50% of total remuneration. Where excluded allowances exceed 50%, the excess is added back to the wage base.

For years, employers set basic low (often 40%) to reduce EPF and gratuity costs and lift monthly take-home. The 50% floor closes that tactic. Total CTC does not change, but more of it now sits in basic, which raises statutory contributions and shifts money into retirement savings.

The takeaway for a global employer: total CTC is unchanged, but the higher basic moves money into EPF, gratuity, and long-term savings, while monthly in-hand dips slightly. It is worth explaining this to candidates who benchmark offers on take-home. The statutory bonus, now under the Code on Wages, 2019 (formerly the Payment of Bonus Act, 1965), ranges from 8.33% to 20% for employees earning basic plus DA of ₹21,000 per month or less. For the fuller compliance picture, see payroll compliance in India and employee benefits in India.

Why structure India salaries with Wisemonk EOR?

Wisemonk is an India-native Employer of Record that helps global companies hire, pay, and manage talent in India without setting up a local entity. We build compliant, tax-efficient salary structures, run payroll in India, handle EPF, ESI, gratuity, and TDS filings, and issue offer letters that meet the Code on Wages 50% basic rule from day one.

We support 300+ global clients, manage 2,000+ employees, process $20M+ in annual payroll, and hold a 4.8/5 rating on G2, with pricing from $99 per employee per month. Whether you need EOR coverage, managed payroll, or a PEO in India, we handle the structure so your team's take-home and your compliance both hold up. See how we pay employees in India or explore our EOR service.