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Salary slip › Salary components
Salary components explained
A salary is usually split into several parts. The split matters: PF, gratuity, HRA exemption and sometimes ESI depend on it. Here is what each part means and how they add up.
The usual earnings
| Component | What it is |
|---|---|
| Basic salary | The fixed core of pay. PF, gratuity and HRA exemption are worked out on it. |
| Dearness allowance (DA) | Extra pay linked to prices, common in government and some factories. For PF it is added to basic. |
| House rent allowance (HRA) | Help with rent. Part of it can be tax free in the old tax regime if the employee pays rent (see HRA exemption). |
| Conveyance allowance | For travel to work. Taxable for most employees today. |
| Special allowance | The balance that makes up the agreed pay. Fully taxable. |
| Overtime, incentive, bonus, arrears | Variable lines added in the month they are paid. |
CTC, gross and net
- CTC (cost to company): everything the employer spends on the person in a year: gross pay plus the employer's PF and ESI, gratuity, insurance and so on.
- Gross pay: the total of the earnings on the slip for the month.
- Net pay (take-home): gross pay minus the employee's deductions. This is what reaches the bank account.
An example structure
A shop offers a salesperson ₹3,00,000 a year as gross pay, that is ₹25,000 a month.
| Line | Per month | Note |
|---|---|---|
| Basic salary | ₹15,000 | 60% of gross |
| HRA | ₹6,000 | 40% of basic |
| Conveyance allowance | ₹1,600 | Fixed |
| Special allowance | ₹2,400 | Balance |
| Gross | ₹25,000 |
If the shop pays PF, its own share is 12% of ₹15,000 = ₹1,800 a month on top. So the yearly CTC is at least ₹3,00,000 + ₹21,600 = ₹3,21,600.
The "50% wages" rule in the labour codes
The new labour codes, in force since November 2025, define "wages" as basic pay, DA and retaining allowance. If the other allowances (HRA, conveyance and the like) come to more than half of the total pay, the extra is counted as wages for PF, gratuity and similar benefits. In plain words: keeping basic very low and allowances very high no longer cuts those costs. The central rules have been notified, and states are still bringing in their own, so ask your accountant how it applies to your business, so ask your accountant how it applies to your business.
Allowances and income tax
In the new tax regime, which is the default, most allowances such as HRA and conveyance are simply taxed as salary. In the old regime, HRA can be partly exempt and a few other allowances have their own small exemptions. This is why the split on the slip matters to the employee even when the total is the same.
Tips
- Write the structure in the appointment letter and keep slips the same every month.
- Use the same line names every month; the maker's Copy for next period keeps them for you.
- Add an "Arrears" line when you pay a past increase, instead of changing basic for the old months.