Aadhaar
A unique identity number issued to residents, increasingly used to verify identity and link records across banking, tax and social security systems. In an employment context it is commonly used to authenticate provident fund and other statutory accounts.
Linking it to a Universal Account Number and bank account helps confirm a provident fund member’s identity and can smooth claims and transfers, and many statutory portals now expect it as a standard verification step.
Because it carries sensitive personal data, employers handling it as part of onboarding or statutory filings need to apply the same data protection discipline they would to any other sensitive employee record, not treat it as routine paperwork.
Basic Salary
The fixed core component of pay that most other salary elements and statutory calculations are expressed as a share or multiple of. It deliberately anchors an Indian salary structure, even though it is usually smaller than total cost to company.
Provident fund contributions, gratuity calculations and several allowance exemptions are all defined with reference to it rather than to total pay, so changing the proportion of pay allocated to this single component changes statutory costs and benefits on both sides of the employment relationship.
A higher basic salary generally means higher provident fund contributions and gratuity accrual, which helps long term savings but reduces immediate take-home pay, so the ratio chosen when designing a salary structure is a genuine policy decision, not an arbitrary split.
Casual Leave (CL)
A short allowance of paid leave intended for brief, often unplanned personal matters that do not require the advance planning earned leave does. It is typically granted as a modest annual allowance and does not usually carry forward or encash the way earned leave can.
It covers everyday personal needs, such as a family matter or a short personal errand, where taking earned leave would be disproportionate, and it is generally expected to be used within the year rather than banked for later.
Because it is meant for short, occasional absence, company policy commonly limits consecutive days taken this way before the absence is treated as a different leave category, and unused casual leave typically lapses rather than converting into pay.
Code on Social Security
The code that consolidates India’s major social security laws, including provident fund, insurance, gratuity and maternity benefit, into a single framework, and extends elements of social security coverage toward gig and platform workers for the first time. It is the umbrella under which provident fund, state insurance and gratuity now formally sit.
Rather than separate stand-alone laws for each scheme, this code brings the rules for retirement savings, health insurance, gratuity and maternity benefit under one structure with shared definitions and administrative principles.
Alongside traditional employees, it creates a pathway for gig workers, platform workers and unorganised sector workers to be brought into some form of social security coverage, funded in part through contributions from the platforms and aggregators that engage them.
Code on Wages
The code that consolidates laws on minimum wages, timely payment of wages, equal pay for equal work and statutory bonus into a single framework, and introduces one common definition of wages used across the other labour codes. It underpins how base pay, minimum wage compliance and bonus obligations are all calculated.
The common wage definition at its centre is meant to stop employers structuring pay so that a large share sits outside the components that used to escape certain statutory calculations under the older, separate laws.
Because provident fund, gratuity and other benefits are commonly calculated with reference to this same definition, a shift here can ripple outward into how much of a compensation package ends up treated as wages rather than as allowances sitting outside it.
Contract Labour
Workers engaged through a contractor or staffing agency to perform work for a company, rather than being directly employed by it, common for functions like housekeeping, security and certain production roles. Indian labour law places specific obligations on both the contractor and the company that engages them.
Contractors above a certain size typically need a licence to supply labour, and the engaging company, treated in law as the principal employer, typically registers itself for the arrangement rather than leaving the relationship informal.
If a contractor fails to pay wages or statutory dues, the principal employer can end up responsible for ensuring workers are not left unpaid, which is why serious companies audit their contractors’ compliance rather than treating it as purely the contractor’s problem.
This area of law has been folded into the newer consolidated Labour Codes covering safety, health and working conditions, but the underlying practical distinction between someone on your own payroll and someone supplied by a contractor remains a live, everyday classification question for HR.
Cost to Company (CTC)
The total annual cost an employer expects to bear for employing someone, combining fixed pay, allowances, statutory contributions and the value of any benefits into a single headline figure. It is the number most commonly quoted in Indian offer letters and salary negotiations.
It typically bundles basic salary, allowances such as house rent and other regular components, the employer’s own statutory contributions to schemes like provident fund and insurance, and the annualised value of benefits such as insurance premiums or other perquisites.
Because it includes employer contributions and non-cash benefits the employee never sees land in their bank account, the figure on an offer letter is always higher than take-home pay, which is one of the most common sources of confusion for new hires comparing competing offers.
How a given figure is broken down into basic pay, allowances and benefits is a deliberate design choice, since the split changes take-home pay, tax outcomes and statutory contributions, which is why reward teams treat structuring the number as active design work rather than a formality.
Dearness Allowance (DA)
An allowance intended to offset the effect of inflation on an employee’s cost of living, historically most associated with government and public sector pay but still seen in some private sector salary structures. It is typically revised at intervals rather than fixed for the life of the role.
It developed to protect real income against rising prices, adjusted periodically against a cost of living index in the sectors where it remains formally used, most visibly across central and state government pay scales.
Some private employers retain a version of it for historical or industry reasons, or because it affects calculations such as provident fund, where basic pay plus dearness allowance together form the base, even where the wider workforce has moved to simpler allowance structures.
Earned Leave (EL)
Paid leave that accrues gradually as an employee works, intended for planned time off, and often called privilege leave in some states and company policies. Unused earned leave can typically be carried forward within limits, and sometimes encashed, rather than being lost at year end.
It builds up in small increments tied to time worked, so a new joiner carries a smaller balance than someone with a full year of service, with the accrual rate and carry forward limits set by the relevant state’s Shops and Establishments Act and often improved on by company policy.
Because it can be carried forward, it often becomes a real accumulated liability on an employer’s books, and unused balances are commonly paid out in cash on resignation or retirement as part of full and final settlement.
Employees Deposit Linked Insurance (EDLI)
A life insurance benefit that pays a lump sum to the family of a provident fund member who dies while in service, funded through a small additional employer contribution alongside provident fund. Employees do not contribute to it directly.
The payout gives dependants of a deceased employee a financial cushion linked to the person’s pay and service, without the family needing to have arranged separate life cover of their own.
It is administered by the Employees Provident Fund Organisation alongside provident fund and pension contributions, so for an employer it is simply another line in routine statutory payroll compliance, though some employers layer a group life insurance policy on top where they want higher cover.
Employees Pension Scheme (EPS)
A pension scheme funded from within the employer’s provident fund contribution, designed to give the employee a regular pension after retirement rather than a single lump sum. It runs alongside provident fund contributions rather than as a separate deduction from pay.
A defined share of the employer’s contribution, not the employee’s, is diverted into this scheme automatically each pay cycle, so it does not appear as an additional line item on the payslip even though it changes how the total contribution is split behind the scenes.
Where provident fund pays out as an accumulated balance, this scheme is designed to provide a periodic pension once eligibility conditions such as a minimum period of service are met, and both sit under the same Employees Provident Fund Organisation record and the same Universal Account Number.
Employees Provident Fund (EPF)
A retirement savings scheme into which both employer and employee set aside a share of monthly wages every pay cycle, building up a fund the employee can draw on later in their career or in defined circumstances. It is one of the oldest and most widely recognised pillars of workplace social security in India.
Contributions from both sides accumulate in an account held in the employee’s name, earning interest declared periodically, so the balance grows steadily across an entire working life rather than being tied to any single employer.
The account is portable: it follows the employee from job to job through their Universal Account Number, administered centrally by the Employees Provident Fund Organisation, so changing employers does not mean starting a new fund from zero or losing track of past contributions.
A portion of the employer’s contribution is automatically routed into a linked pension scheme rather than adding to the lump sum, and withdrawal rules allow either a full payout on retirement or partial withdrawal for specific life events such as buying a home, medical need or education.
Employees Provident Fund Organisation (EPFO)
The central government body that registers employers, maintains individual provident fund accounts, and enforces the rules behind provident fund, pension and linked insurance contributions. It is the regulator an employer deals with directly for provident fund compliance, distinct from the fund itself.
It issues establishment codes to registered employers, receives monthly contribution filings, and resolves member queries and disputes, effectively running the entire administrative backbone behind the scheme rather than just setting its rules.
A member facing online portal lets employees check their balance, track transfers between employers and submit claims digitally, while the organisation also carries out inspections and audits to confirm that registered employers are contributing correctly and on time.
Employees State Insurance (ESI)
A self-financing health and social security scheme that gives lower wage employees and their dependants access to medical care and cash benefits during sickness, maternity or injury. Contributions come from both employer and employee on eligible wages.
Coverage applies to employees earning up to a wage ceiling set under the scheme and working in establishments of a qualifying type and size, with both employer and employee contributing a share of wages every pay cycle to fund it.
In return, covered employees and their dependants get access to medical treatment through a dedicated network of hospitals and dispensaries, cash benefits during certified sickness, maternity benefit, and compensation connected to employment injury or disability.
It sits alongside, not instead of, provident fund: the two address different needs, health and income protection during illness versus long term retirement savings, and depending on wage level and establishment coverage an employee can be enrolled in one, the other, or both at once.
Employees State Insurance Corporation (ESIC)
The statutory body that administers the Employees State Insurance scheme, registers eligible employers and employees, and runs the network of hospitals and dispensaries through which medical benefits are delivered. It is the regulator behind the scheme, in the same way the Employees Provident Fund Organisation sits behind provident fund.
Its remit covers employer registration and coding, collecting contributions, verifying eligibility as wages change over time, and adjudicating disputed claims for benefit.
Employees carry their own insurance number tied to their record with the corporation, which follows them across employers much as a Universal Account Number follows a provident fund member, and HR teams typically handle this registration as a standard part of onboarding for eligible staff.
Form 12BB
A declaration an employee submits to their employer setting out the deductions and exemptions they intend to claim, along with the evidence supporting them, so the employer can withhold the correct amount of tax. It is the paperwork behind an accurate Tax Deducted at Source calculation.
Without it, an employer has no reliable basis for reducing withholding for things like rent paid, investments made or loan interest, so this declaration is what lets those reductions flow into the running monthly tax estimate instead of only being sorted out at year end.
In practice it is often collected in two passes, a provisional declaration early in the financial year followed later by actual documentary proof, giving the employer two checkpoints to correct the running estimate before Form 16 is finalised.
Form 16
The annual certificate an employer issues to each employee summarising the salary paid and the tax deducted at source over the financial year. It is the single document most salaried employees rely on to file their own income tax return.
It sets out gross salary, exemptions claimed, deductions allowed, and the tax computed and deposited on the employee’s behalf, reconciled against what was actually withheld pay cycle by pay cycle across the year.
Employees treat it as the primary supporting evidence when filing their tax return, and often as general proof of income for loans and other formal processes; employers issue it once the financial year has closed and the final withholding position is settled.
Full and Final Settlement (F&F)
The complete closing calculation and payment made to an employee once they leave, bringing together final pay, leave encashment, any bonus or reimbursement due, and deductions for anything owed back to the employer. It is the standard term Indian HR and payroll teams use for what happens after someone’s last working day.
It draws together pro rata salary up to the last working day, payout of unused earned leave, any pending reimbursements or bonus, gratuity where the employee qualifies, less recoveries such as unreturned assets, a notice period shortfall, or outstanding loan balances.
Employers typically complete it within a defined window after the last working day rather than immediately, and issue supporting documents such as a relieving letter and an experience letter alongside it, which matter to the departing employee’s next employer as much as the payment itself.
Gratuity
A lump sum paid by an employer to an employee in recognition of an extended period of continuous service, typically paid on retirement or resignation after qualifying service, or earlier in the event of death or disability. It is one of the standard end of employment benefits built into Indian compensation.
Eligibility generally requires a minimum period of continuous service, except where employment ends early due to death or disability, and the amount payable is calculated using a formula anchored to last drawn salary and total years of service.
Employers can fund the obligation as they go, through an approved gratuity trust or an insurance backed arrangement, or simply provide for it as a growing liability on the books, so the cost does not arrive as a surprise the moment someone finally leaves.
It is one of the components most commonly discussed alongside notice pay and leave encashment as part of a leaver’s full and final settlement, and it receives distinct, generally favourable tax treatment up to limits set by law.
House Rent Allowance (HRA)
An allowance paid to help employees cover rented accommodation, which can qualify for income tax relief when the employee genuinely pays rent and meets the conditions set by tax law. It is one of the most common and most tax efficient components of an Indian salary structure.
Relief is generally calculated with reference to the allowance actually received, the rent actually paid above a share of basic salary, and a factor that varies with the city of residence, with the smallest of the resulting figures available as exempt.
Employees usually need to provide proof of rent paid, such as receipts or a rental agreement, as part of the employer’s own declaration process, and the benefit loses its point for anyone who chooses the simplified income tax regime, since that regime does not recognise it.
Because the exemption depends on genuine rent being paid, employers ask for supporting evidence rather than treating it as an automatic tax free amount, and the city of residence recorded for an employee needs to be accurate for the calculation to come out right.
Income Tax Regime
The choice available to salaried employees between two structures for calculating income tax, one that preserves a wide range of exemptions and deductions, and a simplified one that offers a different rate structure in exchange for giving most of them up. The choice an employee makes changes how payroll calculates monthly withholding.
The regime that keeps exemptions, such as relief on house rent allowance and various other deductions, tends to suit employees with significant declared investments, insurance or rent payments, while the simplified regime tends to suit those with fewer things to declare, trading those benefits for different rates.
Because the choice reshapes the entire monthly tax deducted at source calculation, employers typically ask employees to indicate a preference early in the financial year and build both calculation paths into payroll, so withholding matches the regime actually chosen rather than a default assumption.
Income Tax Return (ITR)
The annual filing an individual makes to the tax department declaring total income, claimed deductions and tax already paid, arriving at a final tax position for the year. Salaried employees rely heavily on their Form 16 to complete it.
Because withholding through the year is only an estimate, filing this return is where an employee’s full year position, including any income from outside their salary, gets reconciled, resulting in either an additional payment due or a refund owed.
Filing is the employee’s own responsibility, not the employer’s, but HR and payroll teams are frequently asked questions about it around year end, which is one more reason accurate, timely Form 16 documents matter well beyond the payroll deadline itself.
Internal Committee (IC)
The committee every qualifying workplace must set up to receive, investigate and resolve complaints under the Prevention of Sexual Harassment at Workplace framework, previously known as the Internal Complaints Committee. Its composition, including external representation, is set by law rather than left to company discretion.
Membership must include a senior woman employee as presiding officer, other employee members, and an external member with relevant experience, specifically so the process is never an all internal group investigating itself.
It receives complaints, conducts a confidential inquiry following natural justice, recommends action, and reports in aggregate, without identifying details, as part of the employer’s ongoing annual compliance obligations.
Labour Codes
A set of consolidated national laws that replace a large number of older, overlapping central labour laws with a smaller number of unified codes covering wages, social security, industrial relations, and workplace safety and conditions. The aim is a simpler, more consistent framework in place of decades of separate acts.
One code brings together wage, minimum wage and bonus related law, another consolidates social security schemes such as provident fund, insurance and gratuity, another governs trade unions, disputes and retrenchment, and another covers occupational safety, health and working conditions across industries.
Because the codes define foundational concepts like wages consistently across all of them, calculations touching provident fund, gratuity, bonus and leave encashment move together when a definition changes, rather than each law drifting independently the way the older separate acts did.
States bring the codes into effect through their own rules, so adoption has moved at different speeds across the country in practice, meaning HR and payroll teams need to track both the central codes and the state level rules that actually switch them on locally.
Leave Travel Allowance (LTA)
An allowance intended to cover travel costs for an employee and their family during leave taken within the country, which can qualify for income tax relief when actual travel takes place and is properly claimed. It is a common component of Indian salary structures aimed at giving a tax efficient benefit for genuine domestic travel.
Relief generally covers the cost of the journey itself rather than accommodation or incidental expenses, is available for a limited number of journeys within a defined block of years, and requires proof that travel genuinely took place.
Like house rent allowance, this benefit only matters under the tax regime that recognises it, so employees who choose the simplified regime typically see it simply added to taxable salary rather than treated as a claimable exemption.
Maternity Leave
A period of paid leave and associated benefits available to eligible women employees around childbirth, governed by maternity benefit law and often enhanced by individual company policy. It is one of the more generous statutory leave entitlements in Indian employment law relative to global norms.
Coverage includes an extended period of paid leave around childbirth, with provisions addressing adoption and commissioning mothers, and protections against dismissal connected to pregnancy or the leave itself.
Eligibility generally requires a minimum period of prior service with the employer, and the law also addresses matters like nursing breaks after the return to work, and, in larger establishments, access to creche facilities.
Because this is a legal entitlement rather than a discretionary benefit, HR teams treat continuity of pay, job protection and a genuine return to work plan as compliance matters rather than goodwill gestures, and many employers layer additional support, such as flexible return options, on top of the legal floor.
Minimum Wages
The lowest rate of pay an employer may legally pay for a given category of work, set separately by central and state governments and varying by state, sector, skill level and sometimes geographic zone within a state. There is no single national figure that applies uniformly everywhere.
Central government sets rates for certain scheduled employments and a floor level wage intended as a reference point for states, while state governments separately notify their own minimum wages across a wide range of job categories and skill levels within their own territory.
Rates are reviewed and revised periodically rather than fixed indefinitely, often taking cost of living into account, so compliance is an ongoing monitoring task rather than a one-time setup, especially for employers operating across multiple states.
Because compliance is checked against actual wages paid, not just the headline basic salary, payroll and compensation teams need to understand which components of a salary structure genuinely count toward meeting the minimum in the relevant state.
National Pension System (NPS)
A voluntary, defined contribution pension scheme open to employees that lets them build a retirement corpus through regular contributions invested across market linked options. Employers increasingly offer a contribution toward it as an optional component of a cost to company structure, on top of statutory provident fund.
Contributions and returns depend on the investment choices made within the scheme rather than being fixed by a fund declared rate, and participation beyond any employer offered component is generally the employee’s own choice.
Offering an employer contribution toward it as part of salary structuring can be a tax efficient way to enhance a package, since it is treated differently from a straightforward cash allowance, which is why it increasingly appears as a line item employees can opt into during compensation discussions.
Permanent Account Number (PAN)
A unique identifier issued by the tax department to individuals and organisations, used to track tax related transactions against a single record. It is required for salaried employees so that tax deducted from their pay is correctly credited to them.
An employer needs each employee’s number to deposit and report tax deducted at source correctly; without it on file, tax is typically withheld at a higher default rate as a safeguard against unmatched deductions.
Beyond payroll, it underpins most formal financial activity in India, from opening bank accounts to property transactions, which is why HR teams collect and verify it during onboarding alongside other identity documents.
Prevention of Sexual Harassment at Workplace (POSH)
The legal framework requiring employers to prevent, prohibit and redress sexual harassment of women at the workplace, including setting up a formal complaints mechanism. It applies regardless of company size, though the exact committee structure required scales with the size of the organisation.
Employers must adopt a written policy, provide regular awareness training, and constitute a properly composed committee to receive and investigate complaints in confidence, working to defined timelines for inquiry and resolution.
Coverage extends to employees, contract staff, visitors and clients at the workplace, and reaches conduct connected to work even away from the office, such as during business travel or at work related events.
The everyday mechanism through which this framework operates is the Internal Committee, and consistent, well documented handling of complaints is treated as a marker of a genuinely well governed employer, not merely a legal formality to file away.
Professional Tax (PT)
A modest tax levied by state governments on salaried employment and certain professions, deducted by the employer from wages and deposited with the state. Not every state levies it, and where it applies, the amount and slabs are set independently by each one.
The employer deducts a small amount each pay cycle based on the employee’s salary band, and separately registers itself with the relevant state authority as an entity liable to deduct and remit the tax, filing periodic returns to confirm compliance.
Because this is a state subject rather than a central one, the rules, the registration process and even whether the tax exists at all vary from state to state, so an employer operating across multiple states runs this compliance separately, and differently, in each one.
Restricted Holiday (RH)
An optional holiday employees can choose to take from a list of festival and observance days that a company publishes each year, in addition to the fixed public holidays it observes. It reflects the wide range of regional and religious observances across India by letting individuals pick the days that matter to them.
The employer publishes a list of eligible dates well ahead of the year, and each employee selects a small number of them to take as leave, rather than the company deciding on everyone’s behalf which optional festivals to observe.
It lets a single national holiday calendar respect genuinely diverse practice without either overloading the fixed holiday list or ignoring observances that matter deeply to a meaningful part of the workforce.
Salary Structure
The way a total compensation figure is broken down into components such as basic salary, allowances, reimbursements and statutory contributions on a payslip. In India this structure does real work, because the split between components changes take-home pay and tax treatment, not just how the number is presented.
Basic salary anchors calculations like provident fund and gratuity, named allowances such as house rent create scope for tax efficient structuring, and reimbursement style components cover specific expenses rather than being taxed as plain salary.
From this structure, an employer calculates and deducts, or contributes toward, provident fund, state insurance where applicable, professional tax where the state levies it, and tax deducted at source, all within the same pay cycle.
Two employees offered an identical cost to company figure can end up with meaningfully different take-home pay depending purely on how their salary is structured, which is why a considered structure, reviewed periodically, belongs to reward design rather than pure payroll mechanics.
Shops and Establishments Act
State level legislation that regulates the basic terms of employment in shops, offices and commercial establishments, covering matters such as working hours, holidays, leave and general conditions of employment. Because each state enacts its own version, the specific rules a business follows depend on where its establishments are registered.
This is usually the first registration a commercial employer completes when opening a location, and it forms the legal foundation for everyday employment matters, such as weekly closures, opening and closing hours, and leave entitlements, for workplaces outside the factory sector.
Because each state passes and amends its own version, a company operating across several states maintains separate registrations and follows separately worded rules in each one, even though the underlying concepts stay broadly similar from state to state.
Sick Leave (SL)
Paid leave available to employees who are unwell, distinct from casual and earned leave, sometimes provided as its own category and sometimes folded into a wider medical leave allowance depending on state rules and company policy. Extended absence usually requires a medical certificate to support it.
A short absence is often accepted on the employee’s own word, but once sickness stretches beyond a short run of days, employers typically expect supporting medical evidence before continuing to treat the absence as paid sick leave.
It sits alongside, not instead of, statutory health linked benefits such as state insurance for eligible employees, whose cash benefit during certified sickness can run in parallel with, or instead of, company sick leave depending on how the policy is written.
Statutory Bonus
An annual bonus that eligible employees are legally entitled to receive, calculated with reference to salary and either the employer’s profits or a minimum floor set by law, whichever framework applies. It sits alongside any discretionary or performance bonus a company chooses to pay on top.
Eligibility generally applies to employees below a wage threshold set by law, working in establishments that meet the coverage conditions, with the payable amount bounded between a statutory minimum and maximum share of wages.
This is a legal floor, not a reward, so a company can still run its own incentive or performance bonus scheme entirely independently, provided the statutory obligation is met first for every employee it covers.
Tax Deducted at Source (TDS)
The requirement for an employer to estimate an employee’s annual income tax liability and withhold a share of it from salary every pay cycle, rather than leaving the whole amount to be settled at once. It is India’s core mechanism for collecting income tax on salaries throughout the year.
The employer projects total taxable salary for the full financial year, factors in declared exemptions and deductions and the tax regime the employee has chosen, and spreads the resulting liability evenly across the remaining pay cycles rather than deducting it unevenly.
Employees submit investment and expense declarations, and later the supporting proofs, so the running estimate reflects real eligible deductions instead of defaulting to the highest possible tax bill; any change in pay or in declarations partway through the year adjusts the remaining deductions.
Amounts withheld are deposited with the tax department and reported against the employee’s permanent account number, then reconciled for the employee at year end on Form 16, which becomes the primary document they use to file their own income tax return.
Universal Account Number (UAN)
A single, lifetime identification number issued to each provident fund member that stays constant even as the person moves between employers. It is what makes a provident fund account portable rather than tied to one job.
Every employer a person works for issues its own member identifier under the provident fund scheme, and this number is the umbrella reference that links all of those together under one record, so a career’s worth of contributions can be traced and consolidated.
For HR teams, the practical rule is simple: a new joiner’s existing number should be linked, never recreated, since duplicating it fragments their contribution history. It is also the reference used for online balance checks, transfer requests and withdrawal claims.