Salary Structure in India: CTC Breakup Explained for Employers
A salary structure in India splits the annual Cost to Company (CTC) into basic pay, allowances, employer contributions and benefits. The employee’s take home pay is lower than CTC because the employer’s share of Provident Fund and gratuity sits inside CTC, and the employee’s own PF, Professional Tax and income tax come out of gross pay. In the worked example below, a CTC of ₹12,00,000 a year gives about ₹91,145 a month in hand before income tax.
Foreign employers hiring in India often quote one number and find that the employee expects another. Setting out each layer before the offer goes out avoids that.
CTC, Gross Salary and Take Home Pay
| Term | What it means |
| CTC | The full yearly cost of the employee to the employer, including employer PF, gratuity and benefits |
| Gross salary | CTC minus the employer contributions and accruals. This is what the employee earns before deductions. |
| Take home pay | Gross salary minus the employee’s PF, Professional Tax and income tax (TDS) |
Worked Example: ₹12,00,000 CTC
The example is an illustration, not a quote. It assumes a monthly CTC of ₹1,00,000, basic pay at 50% of CTC, employer PF paid on the ₹25,000 wage ceiling that applies from 17 September 2026, Professional Tax at the Karnataka rate, and an employee above the ESIC limit. Income tax depends on the employee’s regime and declarations, so it is left out.
| Monthly line | Amount (₹) |
| CTC | 1,00,000 |
| Less employer EPF at 12% of ₹25,000 | 3,000 |
| Less EDLI at 0.5% of ₹25,000 | 125 |
| Less EPF admin charge at 0.5% of ₹25,000 | 125 |
| Less gratuity accrual at 4.81% of basic | 2,405 |
| Gross salary | 94,345 |
| Basic pay (50% of CTC) | 50,000 |
| House rent allowance (set by employer policy) | 20,000 |
| Special allowance (balance) | 24,345 |
| Less employee EPF at 12% of ₹25,000 | 3,000 |
| Less Professional Tax (Karnataka, ₹300 in February) | 200 |
| Take home before income tax | 91,145 |
If the employer pays PF on actual basic instead of the ceiling, employer EPF becomes ₹6,000 and the employee’s PF also rises, so gross and take home both fall. That choice should be written into the contract.
Why Basic Pay Is Set Near 50%
Under the labour codes, which came into force on 21 November 2025, allowances that are excluded from wages are limited to 50% of total remuneration. Anything above that is added back into wages. In practice, employers keep basic pay at about 50% of CTC. A higher basic raises PF, gratuity and the monthly employer cost, and lowers take home pay. The effect on pay and gratuity is explained in how the 50% basic wage rule impacts take home pay and gratuity.
Components of an Indian Salary Structure
- Basic pay. The base for PF and gratuity.
- House rent allowance. A fixed share of basic, set by employer policy.
- Special allowance. The balance of gross after basic and other allowances.
- Employer PF, EDLI and admin charges. Employer PF is 12% of PF wages. EDLI and admin charges are 0.5% each.
- Gratuity. About 4.81% of basic, accrued monthly. It is payable after 5 years of service, or after 1 year for fixed term staff who joined on or after 21 November 2025.
- ESIC. Employer 3.25% and employee 0.75%, only for wages up to ₹21,000 a month.
- Bonus, variable pay and insurance. Set by the offer and the plan chosen.
For the PF wage ceiling and its payroll effect, see PF wage ceiling at ₹25,000. Gratuity rules are in gratuity in India for fixed term staff, and ESIC in ESI contribution in India.
What the Foreign Employer Pays in Total
With an Employer of Record, the monthly invoice is the employee’s CTC plus the EOR fee, which starts from $49 per employee per month. Insurance is added per plan. A worked cost for one developer is in the monthly cost of a software developer through an EOR, and the fee models are compared in EOR pricing in India. Employer of Record in India covers the full employment route.
Checks Before Sending an Offer
- Does the offer state CTC, gross and expected take home separately?
- Is basic pay near 50% of CTC?
- Is PF calculated on the ceiling or on actual basic?
- Which state’s Professional Tax applies to the work location?
- Is gratuity shown as a monthly accrual?
Figures here are illustrations and should be confirmed with a chartered accountant. Wage ceiling source: SCC Online. EPF rates: EPFO. ESIC rates: ESIC.
Frequently Asked Questions
What is CTC in India?
CTC is the total yearly cost of an employee to the employer. It includes gross salary, employer PF contributions, gratuity accrual and benefits such as insurance.
Why is take home pay lower than CTC?
The employer’s PF, EDLI, admin charges and gratuity are part of CTC but are not paid in cash each month. The employee’s own PF, Professional Tax and income tax are then deducted from gross pay.
How much of CTC should be basic pay?
Employers commonly set basic at about 50% of CTC, because under the labour codes excluded allowances are limited to 50% of total remuneration.
What is the employer PF rate in India?
The employer contributes 12% of PF wages. The wage ceiling is ₹25,000 a month from 17 September 2026, so a capped employer pays ₹3,000 a month.
Does ESIC apply to every employee?
No. ESIC applies only to employees earning up to ₹21,000 a month. The employer pays 3.25% and the employee pays 0.75%.
What does an EOR charge on top of CTC?
The EOR fee starts from $49 per employee per month. Salary, statutory contributions and insurance are paid on top.