Updated 2026-08-07

Salary Breakup Explained: Basic, HRA, Allowances, Deductions

Your salary slip contains 8-12 line items, but most employees understand only 3-4. Here's every component decoded: what it is, how it's calculated, how it's taxed, and whether you can optimize it.

Component	Amount (₹15L CTC)	% of CTC	Taxability
Basic Salary	₹50,000	40%	Fully taxable
HRA	₹25,000	20%	Exempt under old regime with rent
Special Allowance	₹44,000	35.2%	Fully taxable
Employer EPF	₹6,000	4.8%	Not paid to you (CTC only)
Gross Salary	₹1.19 L	95.2%	Your pay before deductions
− Employee EPF	₹6,000	−4.8%	80C deduction (old regime)
− Professional Tax	₹200	−0.2%	State levy, deductible
− Income Tax	₹7,189	−5.7%	TDS per slab
In-Hand Salary	₹1.06 L	84.5%	What hits your bank

Basic salary is 40-50% of CTC and fully taxable

Basic salary is the foundation of the structure, typically 40-50% of CTC. Everything else (HRA, EPF, gratuity) is calculated as a percentage of basic.

It is fully taxable under both regimes, with no exemptions or deductions. A higher basic means higher EPF (forced retirement savings at 8.25% tax-free) and higher gratuity.

Some companies let you choose your basic percentage at joining. A higher basic (50% vs 40%) means ₹7,500 more EPF savings per month (employer + employee combined at 15L CTC), but ₹3,600 less in-hand per month. For young employees, higher basic is usually better: compulsory saving at good returns.

HRA is exempt under the old regime only, and only against rent you pay

HRA is a fixed percentage of basic: 50% for metro cities (Bangalore, Mumbai, Delhi, Chennai, Kolkata, Hyderabad, Pune, Ahmedabad), 40% for others.

Tax treatment splits the two regimes apart:

Old regime: HRA is partially exempt. Exemption = minimum of (actual HRA received, rent paid minus 10% of basic, 50%/40% of basic). At ₹15L CTC in a metro: HRA = ₹25,000/month. With ₹15K rent: exemption ≈ ₹5,000/month. With ₹25K rent: exemption ≈ ₹20,000/month.
New regime: HRA is fully taxable. Rent paid gives zero tax benefit. This single change makes HRA irrelevant for tax purposes in the new regime.

Under the old regime, pay rent via bank transfer, get receipts, and claim the full exemption. Some employers allow higher HRA allocation (60-70% of basic) if requested during onboarding.

Special allowance is the fully-taxable leftover after basic and HRA

Special allowance is the balancing figure: after CTC is split into basic, HRA, and employer EPF, whatever remains becomes special allowance. It's the largest component for most employees (35-45% of CTC).

It is fully taxable under both regimes, with zero exemptions. This is why companies structure salary this way: the flexible components, where most of your money sits, have no tax benefits.

Companies could give you 100% basic instead of basic + HRA + special allowance. That would mean higher EPF (12% each side on the full amount) and higher gratuity. The three-part structure lets companies minimize their EPF liability while keeping total compensation the same.

EPF is 12% of basic from each side, capped at the ₹15,000 wage ceiling

Both you and your employer contribute 12% of basic salary each to your EPF account. Total: 24% of basic going toward retirement savings.

EPF appears twice on your salary sheet:

Employer EPF (in CTC, not in-hand): included in your CTC calculation but never reaches your bank account. It goes directly to your PF account.
Employee EPF (deducted from gross): 12% of basic, deducted from your gross salary every month. It shows as a deduction on your payslip.

The statutory EPF wage ceiling is ₹15,000/month. If your basic exceeds ₹15,000, companies may cap PF at 12% of ₹15,000 = ₹1,800/month (each side). That increases your in-hand by ₹2,400-6,000/month but reduces retirement savings.

Professional tax is a state levy capped at ₹2,500 a year

Professional tax is a small state-level tax, capped at ₹2,500/year. Most states (Maharashtra, Karnataka, West Bengal, Andhra Pradesh, Tamil Nadu) levy ₹200/month. February is ₹300 in some states.

It is deductible from taxable income under both regimes. Small but unavoidable. Your employer deducts it and deposits it with the state government.

TDS spreads your income tax across 12 months

TDS, or Tax Deducted at Source, is the estimated income tax your employer deducts from each month's salary, based on your tax regime declaration and projected annual income.

Your employer estimates your annual gross income, subtracts applicable deductions (HRA exemption, standard deduction, 80C, etc.), applies the relevant tax slab, divides by 12, and deducts that amount each month.

If your actual deductions (80C investments, rent, insurance) are higher than what you declared, submit proof before January to avoid higher TDS. If lower, you can request your employer to deduct additional tax and avoid a lump-sum payment at filing time.

Meal coupons and LTA are tax-free; car lease adds a taxable perquisite

Depending on your company and role, your salary slip may include:

Meal Coupons (₹2,200/month): tax-free up to ₹26,400/year. Companies provide Sodexo/Zeta cards. Underutilized: ask HR if available.
Leave Travel Allowance (LTA): tax-exempt twice in a 4-year block for actual travel within India. Rarely claimed but worth ₹50K-1L in tax savings.
Telephone & Internet Reimbursement: tax-free if bills are in the employee's name. Some companies offer ₹1,000-2,000/month.
Medical Allowance: ₹15,000/year tax-free without bills under the old regime. Under the new regime, fully taxable.
Car Lease / Fuel: some senior roles include company-leased cars. The perquisite value is added to taxable income.

Net pay is earnings minus deductions

Earnings: basic + HRA + special allowance + any reimbursements. This is your gross salary.
Deductions: EPF + professional tax + TDS + any loan EMIs or insurance premiums.
Net pay: earnings − deductions = what hits your bank account.

Employers often show "Gross Monthly CTC" at the top of the earnings section. This includes employer EPF, which is misleading: CTC ₹1,25,000 does not mean you'll be paid ₹1,25,000. Your actual earnings (gross) will be ₹1,19,000 (CTC minus employer EPF).

Use our Salary Calculator to enter your actual salary structure and see the true breakdown. Don't let the CTC headline fool you.

Frequently Asked Questions

What are the components of salary breakup in India?

A standard Indian salary has: Basic Salary (40-50% of CTC), fully taxable. It determines EPF, HRA, and gratuity. HRA (40-50% of basic) is partially tax-exempt under old regime, fully taxable under new. Special Allowance (balance amount) is fully taxable. EPF (12% of basic each from employer and employee) is for retirement savings. Professional Tax (₹200/month) is a state levy. Some companies also provide Medical Allowance, LTA, Meal Coupons, and Telephone Reimbursement.

Is basic salary fully taxable?

Yes, basic salary is 100% taxable under both old and new tax regimes. There are no exemptions or deductions specific to basic salary. However, basic salary forms the basis for HRA (which can be exempt under old regime) and is used to calculate EPF contributions (which get 80C deduction under old regime).

What is special allowance in salary?

Special allowance is the balancing component of your salary: whatever remains after calculating basic and HRA. It's fully taxable with no exemptions under any regime. Companies use it as a flexible bucket to absorb whatever is left after the structured components. If you see a large special allowance (35-45% of your CTC), most of your salary has no tax shielding.

How does HRA work in salary breakup?

HRA is a fixed percentage of your basic salary: 50% for metro cities, 40% for non-metro. It appears in your salary slip every month. Under the old tax regime, you can claim HRA exemption for rent paid (minimum of: actual HRA received, rent paid minus 10% of basic, or 50%/40% of basic). Under the new regime, HRA is fully taxable regardless of rent paid.

What deductions are shown in salary breakup?

Your salary slip shows three standard deductions: (1) Employee Provident Fund (EPF) at 12% of basic salary, which goes to your PF account earning 8.25% interest. (2) Professional Tax at ₹200/month (₹2,500/year cap), varies by state. (3) Tax Deducted at Source (TDS): income tax deducted based on your chosen regime and declaration. Some companies also deduct insurance premiums and loan repayments.

Can I change my salary breakup components?

You can request HR to restructure within limits. Common requests: increase HRA (some companies allow 60-70% of basic), add meal coupons (₹2,200/month tax-free), add telephone/fuel reimbursement, change basic percentage. Most companies have standard structures but may accommodate changes during onboarding. It's harder to change after joining.

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