Salary components in India Tax Year 2026–27
A reference for every line you are likely to see on an Indian offer letter or payslip, and what each one actually does.
Employers do not use a standard payslip format, and the same component goes by different names at different companies. What follows is what each line means, whichever label your employer has chosen for it.
Earnings
Basic salary
The anchor of the whole structure. PF, gratuity and your HRA exemption limit are all calculated from Basic (plus DA where it applies), so its size affects far more than its own line.
Typically 40–50% of CTC. Since the Code on Wages, 2019 became operational on 1 April 2026, the wage base is generally expected to be at least half of remuneration, and many employers have restructured toward that. Practice still varies.
Dearness Allowance (DA)
An inflation-linked component, revised periodically. Standard in government and PSU pay; rare in the private sector. Where it exists it is treated as part of the wage base alongside Basic, so it feeds PF and gratuity too.
House Rent Allowance (HRA)
Usually 40–50% of Basic. Fully cash in hand. Under the old regime part of it can be exempt from tax if you actually pay rent, the HRA calculator works out how much. Under the new regime it is fully taxable.
Special allowance
The balancing figure: whatever is left of gross salary once Basic, DA and HRA are fixed. Fully taxable, no exemptions attached. Often the largest single line after Basic.
Other allowances
Conveyance, telephone, books and periodicals, meal cards, leave travel allowance. Under the new regime almost all of these are fully taxable, which is why many employers have folded them into special allowance.
Variable pay and bonus
Counted in CTC at 100% of target, paid only on performance, and usually annual or half-yearly rather than monthly. If a large share of your package is variable, your monthly salary is smaller than the CTC implies.
Employer contributions, which sit in your CTC rather than your payslip
Employer's PF contribution
12% of the PF wage. It splits: 8.33% (capped at ₹1,250 a month) to the pension scheme, and the remaining 3.67% to your EPF balance.
Employees' Pension Scheme (EPS)
The pension slice of your employer's contribution. It buys an entitlement to a monthly pension after 58, not a balance you can withdraw. This surprises people who check their PF passbook and find less than they expected.
Gratuity provision
Commonly 4.81% of Basic + DA. An accounting entry against a future payment, which you receive only after five years of service, one year for fixed-term employees under the Code on Social Security. See the gratuity calculator.
Employer NPS
Where offered, up to 14% of Basic + DA is deductible under section 80CCD(2), in both regimes, which makes it one of the few remaining tax breaks under the new regime.
Deductions
Employee PF
12% of your PF wage, deducted monthly. Either ₹1,800 a month at the statutory ceiling, or 12% of your full Basic. Still your money.
Voluntary PF (VPF)
An optional contribution on top of the statutory 12%. Same account, same rate, no employer match. See the VPF calculator.
Professional Tax
A state levy, capped at ₹2,500 a year nationally. Not charged in Delhi, Haryana, Uttar Pradesh, Uttarakhand, Rajasthan, Himachal Pradesh, Goa or Chandigarh, and repealed in Odisha from 1 April 2026.
Income tax (TDS)
Deducted monthly against your estimated annual liability. Depends on your regime and, under the old regime, on the deductions you declared.
Net pay
The bottom line, and the only figure that matches your bank statement.
Common questions
What percentage of CTC should Basic be?
There is no single correct figure, and it is a matter of employer policy rather than law. 40–50% is common. The Code on Wages, 2019 expects the wage base to be at least half of remuneration, and many employers have moved toward 50% since it became operational in April 2026.
Is special allowance taxable?
Yes, fully, in both regimes. It carries no exemption, which is precisely why it exists. It is the flexible component employers use to make the structure add up.
What is the difference between EPF and EPS?
EPF is a balance you accumulate and eventually withdraw. EPS is a pension entitlement. Your own 12% goes entirely to EPF; your employer’s 12% is split, with 8.33% capped at ₹1,250 going to EPS.
Related
Written by Divya Akash Dutta. Published 18 August 2026. Last reviewed 18 August 2026 for Tax Year 2026–27.