1 / 10How does salary structure decide your real income? In India, salary discussions often focus on cost to company (CTC), but it rarely reflects what actually reaches an employee’s bank account. The structure of salary — how the pay is split between basic, allowances, variable components and deductions — determines the tax one pays and therefore affects real take-home pay. This has become especially relevant in FY2025-26, as the new labour codes and tax rules reshape compensation design. (Image: ChatGPT)
2 / 10Why salary structure matters more than you think? Kuljeet Singh, Chief Financial Officer at GI Group Holding, an HR and recruitment services provider, explains how salary design affects employees beyond headline numbers. “Salary structure has a direct and often underestimated impact on an employee’s take-home pay. While most discussions revolve around total CTC, what finally reaches the employee’s bank account each month depends on how that CTC is structured,” he told CNBC TV18. (Image: MetaAI)
3 / 10Basic salary: It is the core component of any Indian salary structure and typically forms 40–50% of total pay. A higher basic salary increases deductions such as provident fund and gratuity accrual, which can lower immediate take-home pay. Kuljeet Singh: “Basic salary forms the foundation and influences statutory benefits such as provident fund and gratuity. A higher basic may slightly reduce monthly take-home, but it strengthens long-term financial security.” (Image: ChatGPT)
4 / 10How labour codes and pay components shape your take-home? Under India’s new labour codes, several allowances earlier treated separately may be merged or redefined, changing how wages are classified. This can affect calculations for statutory benefits — indirectly impacting monthly take-home pay. Understanding the difference between gross salary (total earnings), net salary (after deductions) and take-home pay (actual amount credited) helps employees track where their money goes towards taxes, retirement funds, insurance and more. (Image: Canva)
5 / 10Allowances and tax efficiency: Singh says, “Allowances like HRA (house rent allowance), LTA (leave travel allowance), and other reimbursements are designed to improve tax efficiency and monthly cash flow, provided they are aligned with actual expenses and tax rules.” Financial planning such as investing in tax-saving instruments further enhances how much you keep after taxes. (Image: ChatGPT)
6 / 10Statutory deductions serve a larger purpose: According to Singh, “Statutory deductions such as PF or ESI are frequently seen as a reduction in take-home pay, but they serve an important purpose by creating social security and retirement savings.” Such deductions ensure retirement savings, insurance coverage and long-term protection. (Image: ChatGPT)
7 / 10Variable pay complicates monthly income: Bonuses, incentives and performance-linked pay can inflate CTC figures but are not always paid monthly. The recruitment expert says, “Variable pay and incentives further add to complexity, as they enhance overall earnings but are not always reflected consistently in monthly income.” They also attract inconsistent tax liabilities. (Image: ChatGPT)
8 / 10Impact of monthly take-home pay fluctuations: Employees with reimbursements, quarterly bonuses or incentive-linked payouts may see significant variation in monthly salary credits. Without understanding salary components, these fluctuations can appear confusing or misleading. Clear salary communication becomes critical in such cases (Image: ChatGPT)
9 / 10Optimisation must not compromise compliance: Maximising take-home pay should not come at the cost of statutory compliance or future benefits. Over-engineered salary structures may reduce short-term deductions but weaken retirement and social security outcomes. “A well-balanced salary structure aims to optimise take-home pay without compromising compliance or future benefits,” Singh adds. (Image: ChatGPT)
10 / 10Look beyond CTC to long-term financial stability: For Indian employees in FY2025–26, evaluating salary structure is as important as negotiating salary hikes. Singh explains, “Employees should look beyond the headline CTC and understand each component, as thoughtful salary structure design can meaningfully influence both present cash flow and long-term financial stability.” Working with your HR to optimise components like HRA, conveyance and reimbursements, and combining it with smart tax planning, you can improve both, tax efficiency and in-hand income. (Image: ChatGPT)
