Understanding Basic Salary: What Percentage of CTC Should It Be?

Since the latest limit for PF is Rs. 15,000, PF contributions stand at 12% of basic and DA. I am interested in understanding if there is a recommended percentage of basic salary to the overall Cost to Company (CTC). For instance, should the basic salary constitute 40% or 50% of the CTC? Your assistance on this matter would be greatly appreciated. Please help.

Regards

As per the PF notification, the basic salary should be 55% to 60%, not less than this. Please ensure that when you prepare the CTC, the basic salary falls within the above criteria.

Please find attached the file for PF amendments, which may be useful to everyone.

Thank you.

Which PF notification is being referred to that prescribes 55%-60% of the basic salary in CTC? Please let me know if you need further assistance.

Potential Changes in Labor Legislation

It appears that a lot of changes may be brought about in labor legislations, including ESI and others. I came across a PF directive in Rajasthan asking inspectors to compile a list of all who have deducted PF on a Basic Salary of 50% or less of CTC. Though there is no legislation on how much the Basic salary should be as a percentage of CTC, the above could indicate the probability of legislation coming about in the future. Keeping the Basic salary above 51% of CTC should be fine.

Regards,
Raana Jitendra Pratap Singh
Head HR, Girnar Software Pvt Ltd

There is no specific direction in the act that a certain percentage should be kept for basic salary, but bifurcation is done only on the basis of taxation liability. However, it is the accepted and factual view that the basic salary should not be less than the prescribed minimum wage of the state.

Thanks & Regards,

Sumit Kumar Saxena

There is no specific percentage of basic, etc., for PF. However, there is a notification stating, "Minimum Wages should not be split," i.e., (Basic + VDA) as notified by the appropriate Government.

Regards, PBS KUAR

I would like to know if the ceiling has been increased from 6,500 to 15,000, is this applicable for all states?

If an employee draws a salary of Rs. 25,000/- with no other allowances, is it necessary to deduct PF, or should they have the option to have a PF account or not?

There is no formal regulation imposing any specific percentage of Basic + DA in a Monthly PaySlip Gross Salary. However, at some places, PF Inspectors are insisting on such percentages ranging from 40% to 50%. It is a common practice adopted by many employers and HR managers to keep the Basic + DA at the lowest possible level compared to the rising monthly gross salary. The purpose is very simple: to minimize PF and other statutory liabilities (Gratuity, Bonus).

If we view PF as a useful post-retirement benefit and a social security tool, then this mindset needs to change. I am sure PF and Government Authorities have taken notice of this, and regulations prescribing specific percentages of Basic + DA will become a reality sooner or later.

Thanks.