HR glossary
What is basic salary?
Basic salary is the fixed core of your pay, before allowances. Basic plus dearness allowance (DA) is what the law calls "wages". Under the Code on Wages, in force from 21 November 2025, wages must be at least 50% of total pay, so PF and gratuity cannot be cut by keeping basic low.
Why basic matters
- PF: 12% of basic + DA (on wages up to ₹25,000 a month unless paid on full basic)
- Gratuity: 15/26 of the last monthly basic + DA for each year
- Leave encashment and many bonuses are often worked out on basic
- HRA exemption (old regime) uses basic + DA
The 50% rule
- Allowances above 50% of total pay are added back to wages for these calculations (Code on Wages, s.2(y), proviso)
Example - ₹12 lakh CTC, Karnataka
- Monthly CTC ₹1,00,000 -> basic ₹50,000 (50%), HRA ₹20,000, special allowance ₹24,595
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