Salary Structure in India 2026: Basic, HRA and the 50% Rule
How an Indian salary is built from CTC: basic, HRA, special allowance, PF, gratuity and NPS, typical shares, which parts are taxed, and what the labour codes' 50% rule changed.
Updated 27 September 2026 · 4 minute read
An Indian salary structure splits your CTC into pieces that are taxed and counted differently. Basic pay is the anchor: PF, gratuity and usually HRA are worked out from it. Since the labour codes came into force on 21 November 2025, basic plus DA effectively has to make up at least half of your pay, because any allowances above 50% are counted as wages for PF and gratuity anyway. That rule is why so many employers have been rewriting salary structures.
The components
| Component | Typical size | What it affects |
|---|---|---|
| Basic pay | 40% to 50% of gross, trending to 50% | PF, gratuity, HRA exemption |
| Dearness allowance (DA) | Mostly government and PSU jobs | Counts with basic for PF and gratuity |
| House rent allowance (HRA) | 40% to 50% of basic | Partly tax-free in the old regime if you pay rent |
| Special allowance | Whatever balances the total | Fully taxable |
| Leave travel allowance (LTA) | Optional | Tax-free for travel in the old regime, within limits |
| Bonus or variable pay | Set by performance | Fully taxable; not wages for PF |
| Employer PF | 12% of wages, often ₹3,000 a month | Inside CTC, not in gross |
| Gratuity provision | About 4.81% of basic | Inside CTC, paid only when you leave |
| Employer NPS | Up to 14% of basic plus DA | Deductible in both regimes |
| Insurance premiums | Group health or term cover | Inside CTC |
Gross salary is CTC minus the employer's PF, gratuity provision and insurance. Take-home is gross minus your PF, professional tax and TDS. The CTC vs gross vs in-hand guide walks through that chain.
The 50% rule, and how to check your structure
The labour codes define wages as basic, DA and retaining allowance. If the rest of your pay, the allowances, adds up to more than 50% of your total remuneration, the excess is added back to wages for PF, gratuity and other statutory purposes.
Take a ₹12 LPA CTC, ₹1,00,000 a month, built the older way:
| Monthly | |
|---|---|
| Basic | ₹40,000 |
| HRA | ₹20,000 |
| Special allowance | ₹35,076 |
| Gross salary | ₹95,076 |
| Employer PF, capped | ₹3,000 |
| Gratuity provision, 4.81% of basic | ₹1,924 |
| CTC | ₹1,00,000 |
Allowances here are ₹55,076, which is more than half of the ₹95,076 gross. Half is ₹47,538, so ₹7,538 is added back and the statutory wages become ₹47,538, not the ₹40,000 basic on the payslip. Employers are responding by raising basic to about half of gross, so that the payslip and the statutory figure match.
Whether that changes your take-home depends on PF. If PF stays capped at the ₹25,000 wage ceiling, a bigger basic changes almost nothing. If PF is taken on full basic, take-home falls and your PF balance grows. Every in-hand salary by package page shows both figures for its CTC.
Which parts are taxed
- In the new regime, almost everything in gross salary is taxed. What reduces tax is the ₹75,000 standard deduction and the employer's NPS contribution under section 124, up to 14% of basic plus DA. See employer NPS in the new regime.
- In the old regime, HRA can be partly exempt, LTA covers travel twice in a four-year block, and your own PF counts towards section 123. HRA's 50% limit now covers eight cities, including Bengaluru, Hyderabad, Pune and Ahmedabad; the HRA calculator uses the new list.
- In both regimes, meal vouchers up to ₹200 a meal, employer gifts up to ₹15,000 a year and employer loans up to ₹2 lakh stay tax-free under the Income-tax Rules, 2026. The allowance limits guide lists the rest.
Reading it on a payslip
Your payslip lists the earnings (basic, HRA, allowances) and the deductions (PF, professional tax, TDS). The employer's PF and gratuity do not appear, because they never pass through your gross pay. If you run payroll for a small team, the salary slip generator builds a payslip with any heads you use, and the guide to reading a salary slip explains each line.
Frequently asked questions
What is the ideal salary structure in India?
There is no single ideal, but basic at around 50% of gross is now the norm because of the labour codes. HRA is usually 40% to 50% of basic, and a special allowance balances the total.
What is the new rule for basic salary?
Under the labour codes, in force since 21 November 2025, if allowances exceed 50% of total remuneration, the excess counts as wages for PF and gratuity. In effect, basic plus DA is treated as at least half of your pay.
What percentage of CTC is basic salary?
Traditionally 30% to 50% of CTC. Since the labour codes, most employers are moving towards basic of about 50% of gross salary.
Is special allowance taxable?
Yes, fully, in both regimes. It is the balancing figure in most structures and carries no exemption.
Does a higher basic reduce take-home salary?
Only when PF is taken on the full basic. If your employer caps PF at the ₹25,000 wage ceiling, a higher basic changes take-home very little.