Calculator
8-City HRA Exemption Calculator (FY 2026-27)
Calculate your HRA tax exemption under the 8-city expanded rule (adding Bengaluru, Pune, Hyderabad, Ahmedabad) for FY 2026-27.
Try it nowGuide & How-To
India's 50% wage rule does not require your employer to set basic pay at half your CTC. It adds excluded pay above half of the relevant remuneration back into the statutory wage base. In September 2026, the separate EPFO contribution wage ceiling rose from ₹15,000 to ₹25,000 a month. Enter the salary components from your own annexure to see the add-back, a capped or agreed higher-wage PF scenario, and a one-year gratuity reference. The tool does not predict an automatic pay cut or decide EPFO enrollment.
Add excluded amounts to the wage base, not to the basic-pay line
Section 2(y) starts with basic pay, dearness allowance and retaining allowance. The excluded remuneration listed in that section can be no more than half the remuneration used in the test; its excess is added back when computing defined wages. The Ministry of Labour's March 2026 FAQ says employer PF/pension and statutory bonus enter this test, while gratuity and ESI do not. That is why a CTC headline alone cannot produce the answer. The widget asks you for the included and excluded components separately. An add-back changes the statutory calculation base; it does not itself rewrite the cash basic-pay amount on your payslip.
The EPFO ₹25,000 ceiling is a separate September change
The 16 September Ministry announcement and 23 September EPFO explanation confirm that mandatory-coverage and contribution wages rose from ₹15,000 to ₹25,000 a month, effective 17 September 2026. For a covered member on the ordinary capped route, the PF scenario uses the lesser of the computed wage and ₹25,000. EPFO also recognises approved higher-wage contribution arrangements; choose that option only when your own employer confirms it. The common rate is 12% on each side, with a 10% option for eligible establishments. The employer share may split between EPF and EPS, so this tool calls it an EPFO share rather than promising every rupee lands in one account.
What the cash and gratuity figures can actually tell you
The cash figure adds the included wage, entered cash allowances and monthly-equivalent statutory bonus, then subtracts only the selected employee PF amount. It is before income tax, ESI, professional tax, loans, benefit deductions and any timing difference in bonus payment. Do not call it net take-home. The gratuity figure is 15/26 of one month's computed wage as a reference for one completed year. Gratuity is not paid into an account every month, and ordinary service-tenure and other eligibility rules still matter. Gratuity itself is not included in the 50% test remuneration in the Ministry's FAQ. Neither number justifies a claim that every employee must lose a fixed amount of monthly cash.
Check your own payroll records before changing a package
Ask HR to identify basic pay, DA, retaining allowance, excluded cash items, employer PF or pension contribution, and statutory bonus in the salary annexure. Check which PF wage is reported in the Electronic Challan-cum-Return, whether your establishment uses 12% or an eligible 10% rate, and whether you have a higher-wage contribution agreement. An employee newly earning between ₹15,000 and ₹25,000 may now enter mandatory coverage, but that depends on the establishment and scheme conditions; the widget's EPFO selector asks you to confirm membership instead of deciding it from CTC. If actual payroll differs from the illustration, ask for the recorded contribution basis and the legal reason.
What the numbers actually mean for you
Meera's basic pay remains ₹40,000 in the calculation
The Code on Wages definition came into effect on 21 November 2025, according to the Ministry's March 2026 answers. The common 'basic must become half of CTC' explanation confuses a legal definition with a payroll restructuring order. The first proviso to section 2(y) says the excess of excluded remuneration over half the relevant remuneration is added back to wages. The employer can still show basic, allowances and other items separately, subject to the actual law and contract.
For Meera, ₹40,000 basic plus DA, ₹50,000 cash allowances and ₹3,000 employer PF give a ₹93,000 test total. The ₹53,000 excluded amount is ₹6,500 above half that total. Her computed code wage is ₹46,500, but basic-plus-DA has not magically become ₹46,500. That distinction matters when HR says a pay cut is mandatory: the add-back alone does not deduct rupees from a bank transfer or require an employer to hold CTC fixed while shifting package lines.
The Ministry counts employer PF or pension and statutory bonus in this remuneration test and leaves gratuity and ESI out. A salary statement may also contain reimbursements, variable incentive pay and other components with different legal treatment. If you cannot identify the included and excluded values, a single CTC number cannot reconstruct them. Ask payroll for the section 2(y) working rather than inserting a generic 50% estimate.
September's ₹25,000 EPFO ceiling is a separate rule
The Ministry's 16 September release says the wage ceiling for mandatory EPFO coverage rose from ₹15,000 to ₹25,000 a month from 17 September 2026. The EPFO's 23 September explanation also says capped monthly contributions now use ₹25,000 or actual wages, whichever is lower, for employees previously restricted to the ceiling. The employer share can feed EPF and EPS; it is not all one account balance.
Meera's computed wage of ₹46,500 is above the cap. If her payroll uses the ordinary capped route and the 12% rate, each side contributes ₹3,000 a month, rather than 12% of the full ₹46,500. A higher-wage arrangement, if actually agreed, would show ₹5,580 on each side at the same rate. The ₹2,580 difference is a user-selected scenario, not an automatic consequence of the 50% wage definition. If her employer actually pays ₹5,580, she must update the separate employer-PF input before treating the 50% test as a consistent package. A verified 10% establishment would show ₹2,500 at the capped ₹25,000 base.
Coverage is another question. A newly hired employee between the old ₹15,000 and new ₹25,000 wage ceilings may now enter mandatory EPFO coverage if the other conditions are met. Someone already a member may continue under different contribution records. The tool therefore asks whether you are covered; it will not infer your UAN status from CTC. For a disputed deduction, request the wage reported in the employer's ECR and the contribution rate on your payslip.
A cash figure before tax is not a take-home prediction
A common salary graphic takes a ₹12 lakh CTC package, sets new basic pay at exactly half, applies 12% PF to the uncapped amount, and publishes a precise take-home reduction. The wage add-back rule does not require that package redesign, and the ordinary EPFO wage ceiling prevents that uncapped deduction in many cases. A precise personal loss needs the employer's actual contract and payroll basis.
The replacement calculation sums actual entered cash components and subtracts the chosen employee PF contribution only. Meera's ₹90,000 monthly cash before deductions becomes ₹87,000 after the capped ₹3,000 employee PF in the example. Income-tax withholding, ESI, state professional tax, salary advances and employer-specific deductions remain outside the tool. If statutory bonus is paid once a year, its monthly equivalent is a comparison device and will not arrive every month.
A change in an actual payslip should be compared line by line: basic and DA, HRA or special allowance, employee PF, employer PF, any gratuity provision and taxable benefits. Employee PF reduces current cash but remains the member's retirement money; employer PF is an employer cost that may sit inside an agreed CTC. Gratuity is generally a later benefit and should not be counted as monthly cash. Payroll can give you the correct before-and-after statement for your employment terms.
Gratuity uses the defined wage without becoming a monthly deposit
The Ministry FAQ confirms the revised wage definition is used for gratuity from 21 November 2025. It also explains that a fixed-term employee can qualify after one year, while other service patterns have their own tenure rules. The ordinary calculation uses fifteen days' wages for each completed service year based on the last drawn wage. That is why the widget shows a one-year reference rather than promising an annual deposit into Meera's account.
At ₹46,500 computed monthly wages, the 15/26 reference is ₹26,826.92 for one completed year. That amount is not the payout if Meera leaves immediately, nor does it tell her total award after many years: wages can change, eligibility differs by employment type and the applicable ceiling or service history still matters. It is also wrong to put an assumed 4.81% gratuity provision into the remuneration denominator when the Ministry explicitly excludes gratuity from that 50% test.
Ask for the last-drawn wage figure and service record if a gratuity payment is being calculated at exit. If an employer books a monthly provision in CTC, that is an accounting and contract question; the statutory calculation is tied to the applicable wage and completed service. The widget's one-year reference helps you challenge the wage base, not decide a legal claim.
What to take to HR when a 50% message arrives
First ask which remuneration items the payroll team put in the included wage and which it treated as exclusions. Meera can reproduce the ₹93,000 denominator from her own annexure; if HR used a ₹12 lakh annual CTC that includes gratuity, that may be the wrong denominator for the Ministry's 50% test. Ask where any statutory bonus sits and whether a payment called 'reimbursement' is actually remuneration under the Code.
Then check EPFO membership, the September 2026 ₹25,000 contribution wage ceiling, and whether a higher-wage joint arrangement exists. If the employer says PF must be 12% of the full computed wage in every case, ask why the statutory cap or any 10% establishment rule does not apply. Conversely, if a worker's monthly wage is below ₹25,000, the cap does not reduce their own wage for the contribution illustration.
Finally ask whether the employer is proposing a contractual salary restructure in addition to calculating code wages. The law may change benefit bases and the employer can negotiate a package, but the two steps must be explained separately. Keep the old and proposed annexures and ask for a worked payslip showing employee PF, employer EPFO share and taxes. This page gives a reproducible starting calculation, not a replacement for a payroll or legal decision about your employment.
Excluded-remuneration add-back and a capped PF scenario
I is included monthly wages: basic pay, dearness allowance and retaining allowance. E is the excluded cash and specified statutory items that count in the 50% remuneration test. If those excluded amounts exceed half of I + E, the excess A is added back to defined wages W. It is an add-back for legal calculations, not an instruction to change the basic-pay entry on the payslip or to set it at half of employer-defined CTC.
The Ministry of Labour's March 2026 FAQ includes employer PF/pension contributions and statutory bonus in the remuneration test, but excludes gratuity and ESI from that test. Enter the components shown in your package, not a guessed percentage of CTC. The separate PF illustration uses the new ₹25,000 monthly contribution ceiling effective 17 September 2026 unless you select an already agreed higher-wage arrangement. A 10% rate is only for an eligible establishment; 12% is the usual rate.
Calculation Steps:
- Read the salary annexure and enter monthly basic pay, DA and any retaining allowance together as included wages. A salary line is evidence; the calculator does not reassign it.
- Enter the monthly equivalent of excluded cash allowances separately. Add employer PF or pension contributions from the package and the monthly equivalent of any statutory bonus in their own fields. Do not put gratuity or ESI in this 50% test.
- Add the included and excluded amounts for test remuneration. Compare excluded items with half that test total. Only the excess is added back to the defined wage base.
- Confirm whether you are an EPFO member. Choose the establishment's verified 12% or eligible 10% rate and whether the payroll uses the ordinary ₹25,000 wage ceiling or an approved higher-wage contribution arrangement.
- Apply the selected rate to the chosen PF contribution wage. The employee amount is an illustrative monthly payroll deduction; the employer amount is a combined EPFO share that may split between EPF and EPS.
- Subtract only employee PF from the monthly-equivalent gross cash components. This is before income tax, ESI, professional tax and other deductions, so it is not a net salary quote.
- Use 15/26 of one month's computed wage for a one-completed-year gratuity reference. Do not treat it as cash paid every month or a guaranteed entitlement at exit.
Worked example
Meera reads her Bengaluru salary annexure instead of starting from a ₹12 lakh CTC headline. It lists ₹40,000 monthly basic plus DA, ₹50,000 in excluded cash allowances, ₹3,000 of employer PF, and no statutory bonus in this example. The remuneration for the Code's test is ₹93,000 a month: ₹40,000 included plus ₹53,000 excluded.
Half of ₹93,000 is ₹46,500. Meera's ₹53,000 of excluded items exceeds that amount by ₹6,500, so the defined wage base for the scenario is ₹46,500. Her basic-plus-DA line stays ₹40,000 on this calculation. HR might renegotiate a package for other reasons, but the 50% add-back does not itself pay her ₹6,500 more cash or force the basic line to ₹46,500.
Meera confirms she is an EPFO member and her establishment uses 12% at the ordinary wage ceiling. The wage for this capped PF scenario is ₹25,000, giving ₹3,000 monthly employee PF and a ₹3,000 employer EPFO share. The ₹25,000 ceiling, effective from 17 September 2026, matters here: multiplying the uncapped ₹46,500 by 12% would instead show ₹5,580 and falsely claim the extra ₹2,580 was compulsory. She would use the higher-wage option only if an applicable arrangement already exists.
Her gross monthly cash components are ₹40,000 plus ₹50,000, or ₹90,000. Less the illustrative ₹3,000 employee PF, the widget shows ₹87,000 before tax and other deductions. It is not her actual bank deposit. At the ₹46,500 computed monthly wage, one completed-year gratuity reference is ₹46,500 × 15/26, or ₹26,826.92; an actual gratuity payment depends on tenure and the wage at separation.
Input definitions
Review the glossary of terms used in the calculation model below. Click on highlighted links to read more in-depth definitions in our financial glossary:
| Parameter | Definition & Context |
|---|---|
| Included monthly wages | Basic pay, dearness allowance and retaining allowance from your own contract or payroll record. Do not replace this with half of CTC. |
| Excluded cash items | The monthly equivalent of HRA and other cash exclusions after checking their section 2(y) treatment. Keep statutory bonus in its separate input. |
| Employer PF or pension in the test | Use the employer contribution shown in your package. The Ministry includes this in remuneration for the 50% test, but not gratuity or ESI. |
| Statutory bonus monthly equivalent | Statutory bonus included for the 50% test, divided by 12 if paid annually. Do not put discretionary performance incentives here. |
| EPFO membership status | Confirm from UAN or payroll. The calculator does not decide whether the September 2026 coverage expansion applies to a particular employee. |
| Employer's applicable rate | The common EPF rate is 12% on each side; EPFO permits 10% in specified establishments. Select the rate your payroll actually uses. |
| PF contribution wage choice | The ordinary scenario caps monthly contribution wages at ₹25,000. Use full computed wages only where a higher-wage arrangement is actually agreed and recorded. |
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