HR & payroll glossary

What is Basic salary?

Basic salary is the fixed core component of pay. Many statutory calculations, including PF, gratuity and HRA exemption, are based on it.

Definition

Basic salary is the foundation of an Indian salary structure. It usually forms a significant share of gross pay. The Labour Codes define 'wages' so that, if excluded allowances exceed 50% of total remuneration, the excess is added back to wages, which pushes structures towards a higher basic.

How it works

PF is computed on basic plus DA (subject to the ₹25,000 ceiling where the employer caps it).
Gratuity uses last drawn basic plus DA.
HRA exemption uses basic as one of its three limbs.

Why HR and payroll teams care

Changing the basic percentage changes PF, gratuity and tax for every employee. It should be a deliberate, documented structure decision.

Example

Basic at 50% of gross

Gross ₹60,000, basic ₹30,000.
PF on actual basic: 12% × ₹30,000 = ₹3,600; PF capped at ₹25,000: ₹3,000.