Last updated: July 2026 · For FY 2025-26 (AY 2026-27)

Your salary structure is far more than a number on an offer letter — it decides how much of your CTC actually lands in your bank account, how much you save for retirement, and how much tax you pay. And in 2025, the rules changed in a big way: the New Labour Codes now require that your basic pay be at least 50% of your total CTC, reshaping salary breakups across the country. This guide explains every component of a modern salary structure in India, how each is taxed under FY 2025-26 rules, and how to structure your package smartly — with a full sample breakup you can copy.

Fresh for July 2026: The four New Labour Codes came into force on 21 November 2025. The headline change for your payslip is the redefinition of "wages" — basic + DA must now make up at least half of your CTC.

Key Takeaways

• Salary structure is the breakup of your CTC into basic pay, allowances, benefits and deductions — each taxed differently.
• Under the New Labour Codes (2025), basic pay must be ≥ 50% of CTC. A higher basic means bigger EPF and gratuity, but lower monthly take-home.
• EPF is 12% (employee) + 12% (employer) on basic + DA, capped at a ₹15,000/month wage ceiling; gratuity provisions run ~4.81% of basic and are tax-free up to ₹20 lakh.
• Most allowance exemptions (HRA, LTA) apply only under the old tax regime. Under the default new regime, they don't reduce your tax.
• The best structure balances tax efficiency, take-home pay and long-term benefits — model both regimes before you decide.

What Is a Salary Structure?

A salary structure (or salary breakup) is how your employer splits your Cost to Company (CTC) into individual salary components. Broadly, a CTC structure has three layers:

1. Fixed pay — guaranteed cash: basic salary, HRA, special allowance and other allowances.
2. Benefits & retirals — EPF, gratuity, and often a flexi benefit plan (FBP) with items like LTA, food/fuel allowances and professional development.
3. Variable pay — performance bonus, incentives or commissions (not guaranteed).

CTC is the total the company spends on you; your take-home salary is what's left after EPF, professional tax and income tax. If you want to see exactly how your CTC translates to monthly cash, our in-hand salary calculator does the maths in seconds, and our CTC calculator helps you model different structures.

For a deeper look at what CTC really includes, see our complete guide to understanding CTC.

Salary Components and Their Taxability

Here's how the common salary components stack up — their typical share of CTC and how each is treated for tax. (Percentages are indicative; your employer's format will vary, and the ≥50% basic rule now applies.)

Component	Typical % of CTC	Taxability (FY 2025-26)
Basic pay (+ DA)	50%+ (now mandated)	Fully taxable in both regimes
House Rent Allowance (HRA)	20–25% (usually ~40–50% of basic)	Exempt under §10(13A) only in the old regime; fully taxable in the new regime
Special allowance	Balancing figure (5–20%)	Fully taxable in both regimes
Leave Travel Allowance (LTA)	5–10% of basic	Exempt for actual domestic travel (2 trips / 4-year block) only in the old regime
Flexi benefit plan (FBP) items	Varies	Exemptions (food, fuel, telephone, etc.) largely old regime only
EPF (employer share)	12% of basic (capped)	Employer contribution not taxed as income (within limits); part of CTC
Gratuity (provision)	~4.81% of basic	Tax-free on payout up to ₹20 lakh
Perquisites (car, accommodation, ESOPs)	Varies	Taxable as per valuation rules; taxed in both regimes
Variable pay / bonus	10–20%	Fully taxable when paid

The big rule of thumb: almost every exemption you've heard of (HRA, LTA, allowances under §10(14)) works only if you opt for the old tax regime. Under the new regime — which is the default — these don't reduce your tax, so a fat allowance-heavy structure loses much of its appeal. (More on this in our old vs new regime calculator.)

Basic Pay — the foundation

Basic pay (plus DA, if any) is the anchor of your structure. It's fully taxable, but it drives everything else: HRA is a percentage of basic, EPF is 12% of basic, and gratuity is calculated on basic. Since 21 November 2025, the New Labour Codes require basic + DA to be at least 50% of CTC, so the era of artificially low basic pay is effectively over.

HRA, LTA and the Special Allowance

HRA helps salaried employees offset rent. In the old regime, the exemption is the least of: actual HRA received; 50% of basic (metro) or 40% (non-metro); or rent paid minus 10% of basic. See our detailed HRA calculation and tax benefits guide. Special allowance is the flexible "balancing" component that squares your structure to the target CTC — it's fully taxable. For a list of what's genuinely tax-free and where, read our tax-free allowances guide.

EPF — retirement savings on autopilot

EPF is a compulsory retirement contribution: 12% from you and 12% from your employer on basic + DA. Key detail most articles miss — the statutory wage ceiling is ₹15,000/month, so mandatory contributions are capped at ₹1,800/month each unless your employer voluntarily contributes on full basic. Of the employer's 12%, 8.33% (up to the ceiling) goes to the pension scheme (EPS) and 3.67% to your EPF. Your own contribution qualifies for Section 80C (old regime).

Gratuity — the loyalty payout

Gratuity is a lump sum paid after 5 years of continuous service (fixed-term employees now qualify after 1 year under the 2025 codes). Employers provision roughly 4.81% of basic each month (from the 15/26 ÷ 12 formula). On payout, gratuity is tax-free up to ₹20 lakh for private-sector employees.

Professional Tax

Professional tax is a state levy deducted from salary. It's small and capped by law at a maximum of ₹2,500 per year, and it's deductible under Section 16 in the old regime.

Sample Salary Structure: A ₹15 Lakh CTC Breakup

Here's a realistic, labour-code-compliant salary breakup for a ₹15,00,000 CTC (basic set at 50%):

Component	Annual (₹)	Notes
Basic pay	7,50,000	50% of CTC (labour-code compliant)
HRA	3,00,000	40% of basic
Special allowance	2,40,900	Balancing figure
LTA	30,000	Old-regime exemption on travel
EPF – employer	90,000	12% of basic (voluntary on full basic)
Gratuity provision	36,075	~4.81% of basic
Professional tax	2,500	Statutory cap (deducted, state-specific)
Total CTC	~15,00,000

What lands in hand? Your monthly take-home is CTC minus both EPF contributions, professional tax and income tax. On this structure, employee EPF (₹90,000/yr) plus employer EPF are locked away for retirement, and tax depends heavily on which regime you pick. Use our calculate in-hand salary from CTC guide and the in-hand salary calculator to see your exact figure. Variable pay isn't shown here — for how bonuses fit in, see our variable pay and bonus guide.

How to Optimize Your Salary Structure for Tax

Optimisation depends entirely on your tax regime — and the calculus flipped after the 2025 changes:

If you're on the OLD regime (you actively opt in):

• Maximise HRA if you pay rent — it's one of the largest exemptions.
• Use LTA for genuine domestic travel.
• Load up flexi benefit plan (FBP) items — food coupons, fuel/telephone reimbursements — that carry §10(14) exemptions.
• Keep the special allowance (fully taxable) as small as your structure allows.

If you're on the NEW regime (the default):

• Allowance exemptions don't help, so the structure barely affects tax — focus instead on the ₹75,000 standard deduction and employer NPS under §80CCD(2), which still work in the new regime.
• A leaner, cash-heavy structure is fine because there's nothing to shelter.

Not sure which regime wins for you? Compare side by side with our tax comparison chart and the CTC & tax calculation guide.

The Higher-Basic Tradeoff

The New Labour Codes push basic pay up — and that's a genuine double-edged sword:

• ✅ More basic = more EPF and more gratuity → larger, tax-advantaged retirement corpus.
• ❌ More basic = lower monthly take-home (bigger EPF deduction) and a larger fully-taxable base. Under the new regime, where allowances no longer shelter income, a higher basic simply means more of your CTC is straightforwardly taxable.

In short: a higher basic is great for long-term wealth and forced savings, but it squeezes present-day cash flow. If you're planning a big purchase or a salary hike negotiation, model both the take-home and the retirement impact before assuming a higher basic is automatically better.

Common Mistakes to Avoid

• Assuming HRA/LTA always save tax — they don't under the default new regime.
• Ignoring the ₹15,000 EPF ceiling — mandatory EPF is often smaller than "12% of full basic."
• Confusing CTC with take-home — CTC includes employer EPF and gratuity you don't receive monthly.
• Chasing a low basic for higher take-home — no longer possible post-2025, and it shrinks your EPF/gratuity.
• Forgetting variable pay isn't guaranteed — don't budget your lifestyle around the full CTC figure.
• Over-loading the special allowance — it's fully taxable and offers zero benefit.

Expert Tips

• Salaried and under ₹12.75 lakh? The new regime likely means zero tax — your salary structure won't change that, so prioritise take-home and retirement savings.
• High rent + home loan? Model the old regime; a well-structured HRA can still deliver real savings.
• Use employer NPS (§80CCD(2)) — it reduces taxable income in both regimes and boosts retirement savings.
• Treat the higher basic as forced savings, not a loss — it compounds in EPF and lifts your gratuity.
• Re-run your numbers every year — regimes, deductions and now labour-code compliance all shift.

Frequently Asked Questions

What is a salary structure in India?

It's the breakup of your total CTC into components — basic pay, HRA, special allowance, EPF, gratuity and more — each with its own tax treatment. Together they determine your take-home salary and tax.

What percentage of CTC should basic salary be?

Under the New Labour Codes effective 21 November 2025, basic pay (plus DA) must be at least 50% of total CTC. Previously it commonly sat at 30–40%.

Is HRA tax-free in the new tax regime?

No. HRA exemption under Section 10(13A) is available only in the old regime. Under the default new regime, HRA is fully taxable.

How much EPF is deducted from salary?

12% of your basic + DA as the employee share, matched by the employer, subject to a ₹15,000/month statutory wage ceiling (₹1,800/month) unless your employer contributes on full basic voluntarily.

Is gratuity taxable?

Gratuity is tax-free up to ₹20 lakh for private-sector employees. Employers provision roughly 4.81% of basic each month toward it.

Does a higher basic salary mean less take-home pay?

Yes — a higher basic increases your EPF deduction and, under the new regime, your taxable base, so monthly take-home falls. In return, your EPF corpus and gratuity grow. Use our in-hand salary calculator to see the exact effect.

How do I optimise my salary structure for tax?

If on the old regime, maximise HRA, LTA and FBP exemptions and minimise the special allowance. On the new regime, allowances don't help — focus on the ₹75,000 standard deduction and employer NPS.

Summary

A smart salary structure in India balances three goals: tax efficiency, healthy monthly take-home, and strong long-term benefits. The 2025 New Labour Codes reset the baseline — basic pay is now at least 50% of CTC, which strengthens your EPF and gratuity while trimming take-home. Remember that most allowance exemptions only work under the old regime, so your ideal structure depends on which regime you choose. Don't guess — model your CTC breakup and compare both regimes with a calculator before you sign.

Ready to see how your salary structure translates to real money? Use our free CTC calculator and in-hand salary calculator to build and compare your ideal breakup.