Of the salary components, basic salary sets the room for tax-free employer NPS and the old-regime HRA exemption; while basic is at least half of total pay, it also sets PF and gratuity. HRA is fully taxable in the new regime; special allowance, the balance of the CTC, always is.

At ₹20 lakh CTC, a 40% and a 50% basic can now give the same PF and new-regime in-hand pay when special allowance is kept outside wages; the difference is in employer NPS and HRA, as Meera's offers and a ₹15 lakh to ₹40 lakh table show.

What does basic salary decide?

PF and gratuity are set on wages, which start with basic plus any dearness allowance. You and your employer each pay 12% of PF wages.

No law fixes a basic salary percentage, but the labour codes, in force from 21 November 2025, set a floor on wages. HRA, conveyance, employer PF and, in the Ministry's FAQs, every allowance other than basic, DA and retaining allowance are left out of wages; if these exceed half of total pay, which leaves out gratuity, the excess counts as wages.

Meera's two ₹20 lakh offers, worked out

Meera rents in Bengaluru for ₹40,000 a month and has two illustrative offers at ₹20,00,000 CTC. Both pay PF on full wages, keep special allowance outside wages, set HRA at 50% of basic and include gratuity at 4.81% of wages (15/26 of a month's wages a year). Offer A sets basic at half of total pay, Offer B at 40%.

Wages are half of total pay in both, B's wages being its basic plus the 10% excess, so CTC is twice wages plus 4.81%, and wages are ₹20,00,000 divided by 2.0481: ₹9,76,515. Employer PF, 12% of that, is ₹1,17,182 and the gratuity provision ₹46,970, so total pay is ₹19,53,030.

A year Offer A Offer B
Basic ₹9,76,515 ₹7,81,212
HRA ₹4,88,258 ₹3,90,606
Special allowance ₹3,71,075 ₹6,64,030
Gross pay ₹18,35,848 ₹18,35,848
NPS room, 14% of basic ₹1,36,712 ₹1,09,370

Under the new regime for FY 2026-27, the ₹75,000 standard deduction leaves ₹17,60,848 taxable in both; tax with 4% cess is ₹1,58,256. After her own ₹1,17,182 of PF and ₹2,500 of professional tax, she keeps ₹15,57,910, and gratuity matches because wages do.

The split shows up in employer NPS, deductible in the new regime up to 14% of basic plus DA. Moving that much special allowance into NPS saves ₹28,436 of tax in A and ₹22,749 in B, at 20% plus cess: B's lower basic costs ₹5,687 a year. Whether employer NPS counts in total pay is not settled; if it does not, the move also cuts B's PF wages by half the amount, not A's.

How much is the NPS room worth at other salaries?

Same structures, new regime, FY 2026-27:

CTC NPS room, 50% basic Tax saved, 50% basic Tax saved, 40% basic
₹15 lakh ₹1,02,534 ₹78,294 ₹57,641
₹20 lakh ₹1,36,712 ₹28,436 ₹22,749
₹30 lakh ₹2,05,068 ₹63,981 ₹51,185
₹40 lakh ₹2,73,424 ₹85,308 ₹68,247

At ₹15 lakh, a 50% basic takes taxable income from ₹13,01,886 to ₹11,99,352, under the ₹12,00,000 rebate line, so tax is nil if salary is the only income; a 40% basic stops at ₹12,19,859 and owes ₹20,653 in tax. Above ₹648 of other income, marginal relief caps tax at the excess over ₹12,00,000, plus cess.

Offer A's NPS cuts in-hand pay ₹9,023 a month but saves ₹2,370 of tax, so with spending unchanged, add ₹2,370 to your monthly investment in the FI calculator to see how it moves your financial independence year. Leaving NPS before 60 is usually a premature exit: at least 80% of a corpus above ₹5 lakh buys an annuity, so an FI year before 60 needs other savings.

Does HRA change anything?

Only in the old regime.

The exemption is the least of HRA received, rent minus 10% of basic, and 50% of basic, since Bengaluru is one of eight 50% cities under the Income-tax Rules, 2026 (40% elsewhere). For Offer A that is ₹3,82,348; for Offer B, ₹3,90,606, all of its HRA, because a lower basic takes less off the rent.

After the ₹50,000 standard deduction, professional tax and ₹1,50,000 under section 80C of the 1961 Act, old-regime tax for FY 2026-27 is about ₹1,95,300 on A and ₹1,92,700 on B. The new regime stays cheaper by about ₹37,100 and ₹34,500, so at ₹20 lakh the old regime wins only with over ₹1,10,000 more deductions, such as home-loan interest.

What is special allowance?

It is the fully taxable rest of the CTC after basic, HRA, employer PF, any NPS and gratuity. The Code does not list it as excluded, and a 2019 Supreme Court ruling on PF counted an allowance paid to all employees as wages, so some employers count it; others follow the Ministry's FAQs and keep it outside wages except through the 50% rule. Ask HR which applies.

What to check when two CTCs match?

Check whether PF is on full wages or the ₹25,000 ceiling, whether employer NPS is offered, and whether gratuity, paid only after five years of continuous service except on death or disablement (one year for fixed-term staff), sits inside CTC.

Dhi looks at your salary structure against your rent, cash flow, net worth, protection and goals, not the CTC alone. Dhi takes no commissions, never mis-sells, and nudges when the PF and NPS behind your retirement need attention.

Frequently asked questions

No law fixes it. Since 21 November 2025, the amount by which excluded allowances and employer PF exceed half of total pay counts as wages, so where special allowance is kept outside wages a basic below half gives the same PF and gratuity as a basic at half; a basic above half raises gratuity, and PF too where it is paid on full wages rather than on the ₹25,000 ceiling, so more is saved and less is paid in hand. Half of total pay is a little under half of CTC, because gratuity sits outside total pay.
Not up to 14% of basic plus dearness allowance: it is added to your salary and then deducted under section 80CCD(2) of the 1961 Act (section 124 of the Income-tax Act, 2025). In the old regime the limit is 10% for a private or PSU employer and 14% for a Central or State Government employer. Employer contributions to PF, NPS and superannuation together above ₹7,50,000 a year are taxable.
No. The HRA exemption is available only under the old regime, and only if you pay rent. The new regime is the default; the old one is chosen in a return filed by the due date. If you tell your employer you will use it, payroll asks for rent receipts, and for the landlord's PAN once rent crosses ₹1,00,000 a year, before applying the exemption to your monthly TDS.

This is general information for salaried individuals in India, not personalised financial advice.