Salary Structure Explained: Basic, HRA, Allowances and Deductions

Last updated: 13 October 2026 · By the Asuraa Team

Quick answer: An Indian salary structure has gross pay (basic, HRA, allowances), employer contributions inside CTC such as employer PF, and deductions such as employee PF, professional tax and TDS. Basic pay matters most: EPF is 12% from each side on wages up to Rs 15,000 a month, per EPFO, and since the labour codes took effect on 21 November 2025, wages should be at least half of total remuneration, as Business Today reported.

Key takeaways

• An Indian salary structure has three layers: gross salary paid to you, employer contributions inside CTC such as employer PF, and deductions such as employee PF, professional tax and TDS.
• Under the EPF scheme the employee and employer each contribute 12% of wages, with the employer's share split 3.67% to EPF and 8.33% to EPS, on wages up to Rs 15,000 a month, per the EPFO employer booklet.
• The labour codes came into force on 21 November 2025 and expect basic plus DA to be at least half of total remuneration, which raises PF and gratuity where employers compute them on full basic.
• The Labour Ministry said on 10 December 2025 that PF deductions remain based on the Rs 15,000 wage ceiling, so take-home need not fall where PF stays at that ceiling.
• Under the new regime, the default for FY 2026-27, HRA and most allowances are fully taxable, but the Rs 75,000 standard deduction and the rebate up to Rs 12 lakh usually leave freshers with little or no tax.

A salary structure in India has three layers: gross salary (basic pay, HRA and allowances), employer contributions that sit inside CTC but never reach your bank (employer PF, sometimes gratuity and insurance), and deductions taken out of gross pay (employee PF, professional tax and TDS). Basic pay is the anchor, because PF, HRA exemption and gratuity are all calculated from it. Tax figures below are for FY 2026-27 unless stated.

This is general information, not tax advice.

What are the components of a salary structure in India?

Most offer letters for freshers list five to eight components, grouped as fixed pay, employer-paid benefits and variable pay. The names vary by company, but the roles are consistent.

The gap between the CTC number and your monthly credit comes from the last four rows plus the deductions covered below. Our CTC vs in-hand salary guide walks through that gap line by line.

Why does basic pay matter so much?

Basic pay matters because it sets your PF contribution, your HRA exemption limit and your gratuity. Under the EPF scheme, the employee contributes 12% of wages and the employer contributes 12%, of which 3.67% goes to EPF and 8.33% to the pension scheme (EPS), on wages up to a ceiling of Rs 15,000 a month, according to the EPFO employer information booklet. The booklet adds that employees may contribute on more than Rs 15,000, but the employer need not match it.

HRA exemption, where you can claim it, is capped at 50% of salary in metro cities and 40% elsewhere, with salary meaning basic plus dearness allowance (ClearTax). A low basic therefore lowers how much HRA can be tax-free. Gratuity, when you become eligible, is also computed on the last drawn basic and DA. A higher basic means more long-term savings and a slightly lower monthly credit; a lower basic does the opposite.

What changed with the labour codes in November 2025?

The four labour codes came into force on 21 November 2025, and the wage code expects basic plus dearness allowance to make up at least half of total remuneration, as Business Today reported. Many employers had kept basic at 30% to 40% of CTC, so structures are being reworked towards a larger basic and smaller special allowance.

Whether your take-home falls depends on how your employer calculates PF. The Labour Ministry said on 10 December 2025 that PF deductions remain based on the Rs 15,000 wage ceiling and that contributing beyond it is voluntary, so take-home need not drop where PF stays at the ceiling (Outlook Money). Employers that compute PF on full basic will deduct more as basic rises. Gratuity, if it is included inside CTC, can also eat into fixed pay because its base is now larger, the same report noted.

What are the usual deductions from gross salary?

Three deductions appear on almost every fresher's payslip: employee PF, professional tax and TDS.

• Employee PF: 12% of basic, or of Rs 15,000 if your employer caps it at the ceiling (EPFO). It counts toward the Rs 1.5 lakh section 80C limit under the old regime (ClearTax).
• Professional tax: A small state-level levy that only some states charge. The amount depends on your state and salary band.
• TDS on salary: Your employer estimates your annual taxable salary, computes tax under your chosen regime and deducts it in monthly instalments (ClearTax). The new regime is the default; you must tell your employer if you want the old regime.

Our guide on how to read a salary slip shows where each of these lines appears.

How does a Rs 6 lakh CTC break down?

Here is an illustration with made-up figures, showing the same Rs 6,00,000 CTC (Rs 50,000 a month) under two PF methods. Basic is set at half of CTC in both columns.

TDS is nil in both columns because annual gross of under Rs 5.8 lakh, minus the Rs 75,000 standard deduction, stays well under the Rs 12 lakh new-regime rebate limit. Slabs were left unchanged in the Union Budget 2026-27 (Moneylife). The second column takes home Rs 2,400 less a month, but Rs 2,400 more goes into PF each month (Rs 1,200 extra from each side), which is your money, not a loss.

How do you check your own salary structure before signing?

Use these steps on any offer letter:

1. Separate fixed from variable. Add up only the components paid every month. That is your real fixed pay.
2. Find basic as a share of CTC. Under the labour codes, wages should be at least half of total remuneration (Business Today).
3. Ask how PF is calculated: on the Rs 15,000 ceiling or on full basic.
4. Check whether gratuity and insurance sit inside CTC. If they do, they inflate the headline number.
5. Note the tax regime default. Unless you declare the old regime, TDS is computed on the new regime (ClearTax).
6. Estimate in-hand. Gross salary minus employee PF, professional tax and expected TDS.

For a full checklist covering notice period, bond and joining terms, see what to check in an offer letter.

What do most guides on salary structure get wrong?

They treat a lower in-hand salary as lost money. When PF rises because basic is higher, every extra rupee deducted from you is matched by your employer and credited to your EPF account, which earns interest. You lose short-term cash, not total compensation.

The second mistake is comparing offers on CTC alone. Two Rs 6 lakh offers can differ by thousands a month in take-home, and by more once variable pay is counted, because one may include gratuity, insurance and a large variable component inside the CTC figure. Compare fixed gross pay and in-hand pay first, then benefits.

Third, many still advise freshers to "maximise HRA to save tax". Under the new regime, which is the default, HRA exemption is not available at all (ClearTax).

Which components are taxed differently under the new regime?

Under the new regime, almost all cash components are fully taxable, including HRA, special allowance and most reimbursement-style allowances, and you get a flat standard deduction of Rs 75,000 instead. The Income Tax Department lists the employer's contribution to NPS under section 80CCD(2), up to 14% of salary, as one deduction still available under the new regime, which is why some employers offer an NPS component.

Under the old regime, HRA (within the three-way limit), 80C investments including your own PF contribution, and health insurance under 80D can lower taxable income, but the standard deduction is Rs 50,000 (ClearTax). For a fresher earning under about Rs 12 lakh, the new regime usually wins, as our new tax regime guide explains. For how salary, savings and tax fit together in year one, see our money guide for freshers.

Related guides

• Money Guide for Freshers in India: Salary, Tax, PF and Investing
• ITR Filing for Freshers: How to File Your First Income Tax Return
• Variable Pay, Joining Bonus and Clawback: What Freshers Should Check
• HRA and Section 80C for Freshers: How Much Tax You Actually Save

FAQ

What is the difference between gross salary and CTC?

CTC is the total annual cost to the employer, including amounts that never reach your bank such as employer PF, gratuity provision and insurance. Gross salary is what is paid to you before deductions: basic, HRA and allowances. In-hand salary is gross minus employee PF, professional tax and TDS. Comparing offers on gross and in-hand pay is more reliable than comparing CTC.

What percentage of CTC should basic pay be?

Under the labour codes that came into force on 21 November 2025, wages, meaning basic plus dearness allowance, are expected to be at least half of total remuneration, as Business Today reported. Before that, many employers kept basic at 30% to 40% of CTC. If your offer shows a much lower basic, ask HR how the structure meets the wage code.

Is PF calculated on full basic salary or only Rs 15,000?

It depends on your employer. The EPFO booklet sets contributions at 12% on wages up to Rs 15,000 a month and lets employees contribute on higher wages, but the employer is not obliged to match above the ceiling. The Labour Ministry said in December 2025 that contributions beyond the ceiling are voluntary. Your offer letter or HR policy should state which method applies.

Is HRA taxable for a fresher?

Under the new tax regime, which is the default, HRA is fully taxable and cannot be claimed as an exemption, per ClearTax. Under the old regime, part or all of it can be exempt if you pay rent, limited to the least of actual HRA, 50% or 40% of basic plus DA, and rent paid minus 10% of salary.

Why is my in-hand salary lower than CTC divided by 12?

Because CTC includes employer PF, and sometimes gratuity and insurance, which are not paid to you monthly, plus any variable pay that is paid later or only on performance. From the remaining gross salary, your employer then deducts employee PF, professional tax where your state levies it, and TDS. Annual or quarterly bonuses also show up only in the months they are paid.

Does a higher basic salary reduce take-home pay?

It can, if your employer calculates PF on full basic, because both your PF deduction and the employer's PF, which sits inside a fixed CTC, rise. If PF stays capped at the Rs 15,000 wage ceiling, a higher basic simply replaces special allowance and take-home stays about the same. Either way, the extra PF is credited to your own EPF account.

Final thoughts

Once you can read basic, allowances, employer contributions and deductions separately, a CTC figure stops being a mystery and offers become easy to compare. Always ask how PF is calculated and what sits inside CTC before you sign. When you are ready to compare real offers, browse fresher roles on Asuraa jobs and check which listings state a salary range.