Basic pay is the single number that determines almost everything else on your salary slip. PF? Calculated on basic. Gratuity? Calculated on basic. HRA exemption? Percentage of basic. Even your pension under UPS is 50% of basic.
Under the new Labour Codes, basic pay must be at least 50% of your Cost to Company. For an employee earning ₹10,00,000 CTC, that means basic cannot be lower than ₹5,00,000 per year (₹41,667/month).
What flows from basic pay
- Employee PF: 12% of basic (₹5,000/month on ₹41,667 basic)
- Employer PF: 12% of basic (same ₹5,000)
- Gratuity provision: 4.81% of basic per year
- HRA exemption: calculated as a percentage of basic (50% in metro, 40% elsewhere)
- Leave encashment at exit: calculated on basic × unused leave days
The paradox employees face
Higher basic = lower immediate take-home (more goes to PF) but higher retirement wealth and better HRA exemption. Lower basic = higher take-home today but weaker long-term benefits.
With the 50% rule now mandatory, the choice is made for you: basic goes up, take-home drops slightly, retirement savings grow substantially.
