Salary Structure in India: CTC Breakup Guide (2026)

Salary structure in India works very differently from what US employers are used to. Instead of a simple base salary plus bonus, every India hire comes with a detailed breakdown of components, basic pay, allowances, statutory contributions, and deductions, all bundled into a single figure called CTC.

Get the structure wrong and you either overpay on statutory contributions, leave your employee with a lower take-home than expected, or run into compliance issues down the line.

This guide breaks down exactly how Indian salary structure works, what each component means, and what US companies need to know to structure compliant, competitive offers in 2026.

What is salary structure in India?[toc=Salary Structure in India]

Salary structure in India is the breakdown of an employee's total Cost to Company (CTC) into defined components: fixed pay, allowances, variable pay, employer statutory contributions, and deductions.

It is not a single number. CTC is the total annual cost the employer bears for one employee. That figure includes components the employee never sees in their bank account, like the employer's EPF contribution and gratuity accrual. The employee receives a smaller amount called net or in-hand salary, after statutory deductions are applied.

This is the part that consistently surprises US employers. A ₹15,00,000 CTC hire does not mean ₹15,00,000 lands in the employee's account. The actual take-home is typically 75-82% of CTC for mid-level roles, depending on the salary structure and chosen tax regime.

If you're still figuring out the full process of paying employees in India, our guide on how to pay employees in India is the right place to start.

CTC vs Gross Salary vs Net (Take-Home) Pay

These three terms appear on every Indian offer letter and payslip. Here's exactly what each one means:

For a detailed breakdown of what payroll actually costs you as an employer in India, our guide on payroll in India covers everything from salary processing to statutory filings.

A simple way to think about it: CTC is what you spend. Gross salary is what the employee earns on paper. Net salary is what they actually receive.

For a deeper look at what this means in rupees for a specific hire, run the numbers on our free India Salary Calculator.

What are the components of a salary structure in India?[toc=Salary Structure Components]

An Indian salary structure has five core components: Basic Salary, Allowances, Variable Pay, Employer Statutory Contributions, and Deductions.

Each component is calculated differently, taxed differently, and serves a different purpose. Here's how each one works.

1. Basic Salary

Basic salary is the fixed foundation of every Indian salary structure. It typically makes up 40-50% of CTC and is fully taxable under both the old and new tax regimes.

Its importance goes well beyond being a pay component. Basic salary is the base figure on which EPF contributions (12% each from employer and employee), gratuity, and sometimes ESI are calculated. Set it too high and your statutory contribution burden increases. Set it too low and you risk falling below state-specific minimum wages, which vary by role, skill level, and location.

Under India's new Wage Code (pending full notification), basic salary must be at least 50% of total CTC. Most well-structured offers already comply with this, but it's worth confirming before you finalise any offer.

2. House Rent Allowance (HRA)

HRA is provided to employees to cover rental accommodation costs. It typically sits at 40% of basic salary for employees in non-metro cities and 50% for metro cities like Mumbai, Delhi, Bangalore, and Chennai.

HRA is partially tax-exempt under the old tax regime when the employee lives in a rented property and submits rent receipts. The exempt amount is the lowest of: actual HRA received, 40% or 50% of basic salary (based on city), or actual rent paid minus 10% of basic salary. Under the new tax regime, HRA exemption is not available, so the entire HRA amount becomes taxable income.

For US companies structuring offers, HRA is one of the most effective tools to improve employee take-home pay without increasing employer cost, particularly for employees who opt for the old tax regime.

3. Special Allowance

Special allowance is the balancing figure in an Indian salary structure. Once basic salary, HRA, LTA, and statutory contributions are calculated, whatever remains of the agreed CTC is shown as special allowance. It is fully taxable under both tax regimes with no exemptions.

Think of it as the residual component that makes the numbers add up to CTC. Its size reflects how lean or generous the rest of the structure is.

4. Leave Travel Allowance (LTA)

LTA reimburses employees for domestic travel expenses for themselves and their immediate family during approved leave. Only actual travel fare is covered, not hotel or food costs.

Tax exemption on LTA applies only under the old tax regime and only for two trips within a four-year block. Employees must submit travel proof to claim it. Under the new tax regime, LTA is fully taxable.

5. Variable Pay and Performance Bonus

Variable pay is the performance-linked portion of CTC, typically between 5% and 20% for most roles in India. It is paid quarterly or annually based on individual, team, or company performance targets.

Variable pay is fully taxable as income. For US companies setting up India teams, it's important to define clear KPI frameworks and payout timelines upfront, as disputes over variable pay are a common friction point in India employment relationships.

Statutory bonus under the Payment of Bonus Act applies to employees earning up to ₹21,000/month, at a minimum of 8.33% of salary. This is a separate legal obligation from discretionary performance bonuses.

6. Employer Statutory Contributions (EPF, ESI, Gratuity, EDLI)

These are the employer-paid components that sit inside CTC but never reach the employee as monthly pay. They represent real cost to you as an employer.

• EPF (Employee Provident Fund): Employer contributes 12% of the employee's basic salary every month. This goes into the employee's retirement savings account managed by EPFO.
• ESI (Employee State Insurance): Employer contributes 3.25% of gross wages for employees earning up to ₹21,000/month. This funds health and social security coverage for eligible employees.
• Gratuity: Employer accrues approximately 4.81% of basic salary annually as gratuity liability. This is paid out as a lump sum when an employee completes five or more years of continuous service.
• EDLI (Employees' Deposit Linked Insurance): Employer contributes 0.5% of basic wages (capped at ₹15,000/month) toward a life insurance scheme linked to EPF. Employees pay nothing toward this.

For a full breakdown of what these contributions cost at different salary levels, use our free Employee Cost Calculator.

7. Deductions (Employee PF, TDS, Professional Tax)

Deductions are amounts subtracted from gross salary before the employee receives their net pay.

• Employee EPF: 12% of basic salary is deducted from the employee's gross pay each month and deposited into their EPF account. This is capped at ₹1,800/month if basic salary is at or below the ₹15,000 statutory wage ceiling.
• TDS (Tax Deducted at Source): Employers calculate each employee's projected annual income tax liability, divide it by 12, and deduct that amount monthly. The amount varies based on the employee's total income, chosen tax regime, and investment declarations. For more on how this works, see our guide on payroll tax in India.
• Professional Tax (PT): A state-level deduction of typically ₹150 to ₹200 per month, capped at ₹2,500 per year. Applies in states like Maharashtra, Karnataka, West Bengal, and Tamil Nadu. Not all states levy it.

New to how CTC is defined and used in India? Our CTC explainer covers everything you need to know before structuring your first offer.

What does a salary breakup look like in practice? [toc=Salary Breakup]

For a ₹15,00,000 (~$18,000) CTC hire, here is exactly how the salary breaks down across every component.

A few things worth noting here. First, the employer's EPF and gratuity are inside the CTC figure but never reach the employee monthly. Second, the take-home percentage drops as salary increases because higher income pushes employees into higher TDS brackets. Third, employees on the old tax regime who claim HRA exemption and 80C deductions will see a meaningfully higher net salary than this estimate.

Want to run the numbers for a different CTC or salary level? Use our free India Salary Calculator to get an instant breakdown.

How do India's new labor codes affect salary structure?[toc=India Labor Codes]

The new Wage Code requires Basic + DA to constitute at least 50% of total CTC, which directly increases EPF and gratuity liabilities for both employers and employees.

Most companies historically kept basic salary at 40% or lower to reduce their EPF and gratuity obligations and improve employee take-home pay. The new Wage Code closes that gap.

Impact on employer cost: Higher basic salary means higher employer EPF (12% of basic) and higher gratuity accrual (~4.81% of basic). For a ₹15,00,000 CTC hire, moving basic from 40% to 50% increases your annual employer EPF contribution by roughly ₹18,000 and gratuity accrual by approximately ₹8,600.

Impact on employee take-home: The employee's own EPF deduction (12% of basic) also increases, which slightly reduces monthly net pay. An employee who previously had a lower basic benefiting from a larger special allowance will see their take-home dip modestly.

What US companies need to account for: If you are building salary offers for India hires right now, structure basic at 50% of CTC from the start. Retrofitting salary structures after the Wage Code is fully enforced creates payroll disruption and employee dissatisfaction. It is cleaner and safer to get it right at the offer stage.

India's four Labor Codes came into effect from November 21, 2025, and enforcement is now active from January 2026. Most India payroll and EOR providers, including Wisemonk, are already structuring salaries in compliance with the 50% basic requirement.

For a deeper look at how payroll works end to end in India, our guide on payroll in India covers everything from salary processing to statutory filings.

Structure India salaries compliantly with Wisemonk EOR[toc=Wisemonk EOR]

Wisemonk EOR is a leading India-specialist Employer of Record that structures, processes, and manages salary for your India team, so every offer you make is compliant and optimized from day one.

From our experience managing payroll for 300+ global companies, salary structure is where most US employers get tripped up early. We handle it all: the right basic-to-CTC ratio, allowance splits, statutory contributions, and monthly payroll filings.

Whether you need full EOR coverage, managed payroll for an existing India entity, or contractor payments through our Agent of Record service, we got you all covered!

Talk to our India hiring experts today and get your first hire on payroll within 48 hours.