Basic salary is the fixed core of your pay, before any allowances are added. It looks like just one line on a payslip, but it is the figure almost everything else is calculated from, which makes it the most important number in a salary structure and the one worth checking first.

What basic drives

• PF: your and the employer’s 12% are computed on basic plus DA
• Gratuity: the 15/26 formula uses last drawn basic plus DA
• HRA exemption: “salary” for the least-of-three test means basic plus DA
• Statutory bonus and leave encashment: both key off basic

Basic is usually set at 40% to 50% of CTC. A structure with a deliberately low basic increases short-term take-home because less goes to PF, but it also shrinks your retirement corpus, your gratuity and your HRA exemption. Two offers with identical CTC but different basic are not worth the same over a career.

The 50% rule

The Code on Wages, 2019 defines “wages” so that allowances excluded from it cannot exceed 50% of total remuneration. In effect, basic plus DA must be at least half of pay. When the Code is fully notified, employers running very low-basic structures will have to rebalance, which raises PF and gratuity costs for both sides.

Frequently asked questions

Is a higher basic better or worse for me?

Worse for immediate take-home, better for retirement savings, gratuity and, if you rent, HRA exemption. For most people a basic around 45 to 50% is a reasonable balance.

Can my employer reduce my basic?

Reducing basic is legally fraught and generally not done for existing employees. Restructuring usually happens at increment time by growing other components more slowly.

Does basic salary include DA?

They are separate lines, but for PF, gratuity and HRA they are almost always taken together as “basic plus DA”.

See how the basic percentage changes your numbers with the Salary Breakup Calculator and the CTC to In-Hand Salary Calculator. Our guide to pay bands covers how employers set the range.