What is the minimum proportion of Basic component in a CTC structure?

Hello HR Professionals,

I have a query about what is the minimum proportion of the Basic component in a CTC Structure? The scenario behind this question is if I want to prepare a salary structure where the Annual CTC is 9 lakhs, in which the Variable Payout is 4.8 lakhs, and 4.2 lakhs is the Fixed Annual CTC that we will be offering. The Basic component that I want to provide is 40% of the Fixed Annual CTC (4.2 lakhs) and not the Total CTC (9 lakhs). So, will there be a statutory violation in this regard? Please help.

Hi Shubho,

First of all, 'CTC' is not a term or component referred to in any acts or rules, nor is it dealt with by courts. If you use the 'search' option at the top of this page, you can see a complete list of discussions that have taken place in this forum on CTC, which will help you learn more about your query. Generally, CTC is divided into two parts:

i) Cash cost, which determines the take-home pay comprising monthly earnings, deductions/recoveries, and net pay credited to the employees' bank accounts.

ii) Annual charges like the employer's contribution to EPF account, gratuity, leave salary, bonus, insurance premium paid by the employer, which are generally not paid monthly but are payable as and when accrued and due. There are no prescribed lower and upper limits for any component in CTC, except for the minimum wages that need to be adhered to, which is not applicable in this case. Therefore, you are not exposed to any violation regarding CTC.

Dear Friends,

I believe we should update ourselves before responding to any query or appreciating any response, especially by senior members.

I agree that CTC is a concept and it is not a wage or salary. However, I would like to draw the attention of the seniors to the Code on Wages, which is a law of our country. Although it has not yet been implemented, it includes provisions for CTC.

Thank you.

If your basic salary is not less than the sum of basic and DA as per the notified minimum wages, the structure could be fair. Otherwise, it will be unfair and illegal.

By keeping 40% of the fixed salary as basic, will you consider this basic as wages for all purposes including for deduction due to leave without pay? No. When an employee takes leave without pay, you will take the gross salary, and for calculating his gratuity, you will take only the basic pay that you fix, which is illegal. There are court orders directing the employer to pay gratuity on notified minimum wages. The basic wage under the Provident Fund Act is also the total salary, which should include all allowances. Though HRA is excluded, which kind of HRA is excluded should be noted. HRA as part of salary and paid to all employees, whether they reside in rented houses or not, cannot be considered as rent allowance. As such, the total salary qualifies as basic salary. Then why should HR persons try to structure a salary with a lot of small components in it?

Can we split to minimum wages in Basic + HRA + DA?

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Dear Ambika-Service,

The answer is no. I will not provide an explanation here. Please conduct a search or research on the splitting of wages and also refer to the Code on Wages for the definition of wages.

Govt notifies basic and DA. Wages must be fixed considering these notifications.

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Govt notifies basic and DA.

Wages must be fixed considering these notifications.

Hi Ambika,

My view is that central and state governments publish minimum wages comprised of Basic + DA from time to time. Variances in DA are linked to the CPI index for adhering to fluctuations periodically. However, there is no component of HRA or other allowances applicable to various categories published in the notifications. So, as long as your Basic & DA split is not less than the rates that have been published as MW by governments, it would be fair compliance. HRA will be over and above the MW.

On the other hand, CTC rates are not published by government notifications so far. However, the concept has been dealt with in the yet-to-be-implemented (date of implementation/effective date pending) Labour Codes, though complete gazette notifications have been published. We can also compare with those stipulations/rates in order to comply with the statutory provisions to be implemented very soon.