- Basic, dearness allowance and retaining allowance are the named parts of “wages” in section 2(y) of the Code on Wages.
- Gratuity is 15 days’ wages per completed year, worked out as monthly wages ÷ 26 × 15.
- Employer and employee PF are each 12% of wages, often capped at the ₹25,000 ceiling.
- In Pune’s Zone I, the skilled minimum wage is ₹15,766 a month from July to December 2026, per SGCMS’s Maharashtra wage update.
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Why does basic now sit near 50% of pay?
Because anything you keep out of wages is capped at half of total pay. The 50% wage rule adds any excess back.
For years, Indian employers set basic at 30% to 40% of gross. That kept PF and gratuity low. The government’s own FAQ example shows why that no longer works: ₹20,000 basic on ₹76,000 total pay becomes ₹22,000 of wages. Taxmann’s note on section 2(y) walks through it.
So many payrolls now set basic at 50% of gross. Simple.
Strictly, the Code needs less. Special allowance is not on the excluded list, so it counts as wages too. A 50% basic is the cautious default: even if an auditor treated every other line as excluded, the add-back on our engineer would be about ₹1,500 a month.
What does a ₹71,652 basic cost you?
Take a Pune engineer on ₹18 lakh CTC, with a yearly basic of ₹8,59,821. Here is what that single number drives each month.
| Linked to basic | Rule | Monthly amount |
|---|---|---|
| Employer PF, ceiling basis | 12% of ₹25,000 | ₹3,000 |
| Employer PF, full basis | 12% of ₹71,652 | ₹8,598 |
| Gratuity provision | 4.81% of basic | ₹3,446 |
| HRA exemption cap, Pune | 50% of basic, old regime only | ₹35,826 |
| Employer NPS limit, new regime | 14% of basic | ₹10,031 |
The PF basis is your choice. Paying on full basic adds ₹67,179 a year to your cost and to the employee’s EPF balance.
Gratuity is the line that grows. After five years, this engineer is owed about ₹2,06,688. Had basic been 30% of gross, the figure would be about ₹1,24,013, and the Code would now top that base up anyway.
A related point: the house rent allowance exemption is measured against basic too. A low basic shrinks it.
How does Remunance set basic salary for your India hires?
Remunance builds each salary letter so basic plus DA meets the Code on Wages test before the first payroll run. You choose the PF basis, ceiling or full basic, and we show what each costs. Gratuity accrual and employer PF pass through at cost. Our guide to salary structure in India shows the rest of the build, or you can book a free salary-structure review for your current team.
What else do people ask about basic salary?
Is basic salary 50% of CTC or of gross?
Neither, strictly. The Code caps excluded items, such as HRA and employer PF, at half of total remuneration. Basic at about 50% of gross keeps you close to that line whatever the other components are called.
Is basic salary the same as minimum wage?
No. Minimum wage is the legal floor for wages. Basic is one part of wages and is usually far above the floor for skilled hires.
Is basic salary fully taxable?
Yes. Basic is taxed in full under both regimes, and it carries no exemption of its own.
Planning a hire in India?
Our founding team has run payroll and hiring in India for 22+ years, first as Remunance Systems, which was later acquired by ADP.