Salary Slip Components Explained — Earnings, Deductions, CTC vs Gross vs Take-Home

Updated: 3 June 2026 | Income-tax Act, 2025 | FY 2026-27

A salary slip has two sections — Earnings (Basic, HRA, DA, Special Allowance, LTA, Bonus) and Deductions (EPF employee share, Professional Tax, TDS/Income Tax, ESI). CTC ≠ Gross ≠ Net: CTC includes employer contributions; Gross is what you earn before deductions; Net (take-home) is what you receive after all deductions. Key tax-free components: HRA, LTA, Conveyance Allowance, and a ₹75,000 standard deduction under the new regime.

CTC ≠ In-Hand

Your actual take-home is typically 65–75% of CTC after EPF, TDS, and employer cost adjustments
At ₹12L CTC, take-home is roughly ₹75,000–₹82,000/month depending on tax regime and salary structure.

Earnings Components — What Each Means

Component	Typical % of CTC	Tax Treatment	Notes
Basic Salary	40–50%	Fully Taxable	Base for EPF, HRA, Gratuity calculations. Higher basic = more PF, less take-home.
House Rent Allowance (HRA)	40–50% of Basic	Partly Exempt	Exempt up to min of: Actual HRA, Rent paid − 10% of Basic, 50%/40% of Basic (metro/non-metro). Old regime only.
Dearness Allowance (DA)	Variable (govt employees)	Fully Taxable	Primarily for government employees to offset inflation. Revised twice a year. Included in EPF base.
Conveyance / Transport Allowance	₹1,600/month typical	₹1,600/month Exempt	Exemption under old regime: ₹19,200/year. Under new regime, covered within standard deduction of ₹75K.
Medical Allowance	₹1,250/month typical	Fully Taxable	No separate exemption available in new or old regime (old ₹15K/year exemption was removed from FY 2018-19).
Special Allowance	Residual — varies widely	Fully Taxable	Catch-all component. Employer uses to fill up the salary to the offered package. No exemption.
Leave Travel Allowance (LTA)	1–2 months basic/year	Exempt (actual travel, 2/4 yr block)	Exempt for actual travel cost within India (economy class air, AC train) for self and family. 2 claims in a 4-year block. Old regime only.
Performance Bonus	Variable (0–30% of CTC)	Fully Taxable	Taxable in the year of receipt. Usually paid annually or quarterly. TDS deducted at source.

Deductions on Salary Slip — What Gets Cut

Deduction	Rate	Who Bears?	Notes
EPF — Employee Contribution	12% of Basic + DA	Employee	Goes to EPFO account. Qualifies for 80C deduction (old regime). Interest: 8.25% p.a. tax-free on exit.
EPF — Employer Contribution	12% of Basic + DA	Employer	Not deducted from salary but part of CTC. 8.33% to EPS (pension), rest to EPF — employer share is tax-free.
Professional Tax (PT)	State-specific	Employee	Max ₹2,500/year. Deductible from taxable salary. Maharashtra: ₹200/month for salary > ₹10,000. Some states have no PT.
TDS — Income Tax	As per slab / new regime	Employee (deducted by employer)	Employer deducts monthly TDS on estimated annual income. Employee must declare investment proofs to reduce TDS.
ESI — Employee Contribution	0.75% of gross salary	Employee	Only if gross salary ≤ ₹21,000/month. Provides medical, sickness, maternity benefits through ESIC.
ESI — Employer Contribution	3.25% of gross salary	Employer	Not deducted from salary. Part of CTC. Applicable only when employee salary ≤ ₹21,000/month.

CTC vs Gross vs Net Salary — Formulas

Concept	Formula	What It Represents
Gross Salary	Basic + HRA + DA + All Allowances + Bonus	Total pre-deduction earnings. What you earn before any cuts.
Net / Take-home Salary	Gross − Employee EPF − Professional Tax − TDS − ESI	Actual amount credited to bank account each month.
CTC (Cost to Company)	Gross + Employer EPF + Employer ESI + Gratuity Provision + Health Insurance + Other Benefits	Total annual cost the employer incurs. Always higher than gross.

Typical Salary Breakup Examples — ₹6L, ₹12L, ₹24L CTC

Component	₹6L CTC / month	₹12L CTC / month	₹24L CTC / month
Basic Salary	₹21,000	₹42,000	₹80,000
HRA	₹10,500	₹21,000	₹40,000
Special Allowance	₹10,100	₹22,000	₹52,700
Transport Allowance	₹1,600	₹1,600	₹1,600
Medical Allowance	₹1,250	₹1,250	₹1,250
Gross Salary	₹44,450	₹87,850	₹1,75,550
Less: Employee EPF (12%)	−₹2,520	−₹5,040	−₹9,600
Less: Professional Tax	−₹200	−₹200	−₹200
Less: TDS (new regime)	~₹0	~₹3,800	~₹27,000
Approx. Take-home / month	~₹41,730	~₹78,810	~₹1,38,750
Employer EPF (12%)	₹2,520	₹5,040	₹9,600
Gratuity provision (~4.81%)	₹1,010	₹2,020	₹3,848
CTC (annual)	₹6,00,000	₹12,00,000	₹24,00,000

Note: Indicative figures. Actual breakup depends on employer structure, city, and individual declarations. TDS computed at new regime rates for FY 2026-27.

Frequently Asked Questions

What components of salary are tax-free?

Several salary components carry full or partial tax exemption: (1) HRA — exempt to the extent of the minimum of: actual HRA received, 50% of basic salary (metro) or 40% (non-metro), or actual rent paid minus 10% of basic; (2) LTA — exempt for actual travel expenses within India, for 2 journeys in a 4-year block; (3) Conveyance/Transport Allowance — ₹1,600 per month (₹19,200 per year) is exempt; (4) Children Education Allowance — ₹100 per child per month (₹1,200 per year) for up to 2 children; (5) Uniform Allowance — actual uniform expenditure; (6) Under the new tax regime, a Standard Deduction of ₹75,000 is available on gross salary.

How is HRA calculated and what is the tax exemption formula?

HRA tax exemption is the MINIMUM of three amounts: (1) Actual HRA received from employer during the year; (2) Actual rent paid minus 10% of basic salary; (3) 50% of basic salary if you live in a metro city (Delhi, Mumbai, Kolkata, Chennai) — or 40% of basic salary if non-metro. Example: If basic is ₹50,000/month, HRA received is ₹20,000/month, and rent paid is ₹18,000/month (Mumbai): Method 1 = ₹20,000; Method 2 = ₹18,000 – ₹5,000 = ₹13,000; Method 3 = 50% of ₹50,000 = ₹25,000. Exempt HRA = Minimum = ₹13,000/month. The remaining ₹7,000/month is taxable.

What is the difference between CTC, gross salary, and take-home (net) salary?

CTC (Cost to Company) is the total annual cost an employer bears for an employee — it includes gross salary PLUS employer contributions to EPF (12% of basic), employer ESI contribution (4.75% if applicable), gratuity provision (~4.81% of basic), health insurance premium paid by employer, and any other perks. Gross Salary is CTC minus employer's share of PF and other employer costs — it is what appears in your offer letter as "gross". Net/Take-home Salary is Gross minus all deductions: employee EPF (12% of basic), Professional Tax (state-specific, max ₹2,500/year), TDS (income tax deducted monthly), and ESI (1.75% of gross if salary ≤ ₹21,000/month).

What is special allowance in a salary slip?

Special allowance is a residual, variable component paid by the employer to make up the remaining salary after all fixed components (Basic, HRA, DA, TA, Medical Allowance, etc.) are set. It is fully taxable — there is no specific exemption for special allowance under income tax. Employers use it to offer competitive packages while keeping other structured components at optimal levels. Special allowance can vary from employee to employee and is often used to adjust the take-home upward without affecting PF-linked basic salary.

Is EPF deducted on basic salary or gross salary?

EPF (Employees' Provident Fund) is calculated on Basic Salary + Dearness Allowance (DA), not on gross salary. The employee contributes 12% of (Basic + DA), and the employer contributes a matching 12% — of which 8.33% goes to EPS (Employees' Pension Scheme) capped at ₹15,000 and the rest into EPF. If your Basic+DA exceeds ₹15,000/month, the statutory minimum EPF is on ₹15,000, but many employers calculate on actual basic. The employee's EPF contribution qualifies for Section 80C deduction under the old tax regime.

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