Enter the old and revised CTC, and get a complete salary increment letter with the hike percentage, the revised breakup, the effective date and any arrears due. Built for Indian payroll and the wage rules in force since 21 November 2025.
An increment letter tells an employee that their pay is being revised. It is issued after an appraisal, promotion or market correction, ideally before the new pay takes effect. It should state the old and revised CTC, the hike percentage, the effective date, the revised salary breakup and any arrears owed.
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An increment letter is a short document that does a lot of work. It records what the new package is, from when it applies, and what changed in the structure. Payroll uses it to update the salary master, the employee keeps it as proof of the revision, and background verification teams at the next employer often ask for it. Vague wording here creates disputes months later, so state the numbers plainly.
The formula is simple, and the mistakes are all in what gets compared.
Compare like with like. CTC against CTC, or monthly gross against monthly gross. Comparing a revised CTC against an old in-hand figure inflates the apparent hike, and it is the single most common reason an employee reads an increment letter and feels misled. If your letter states CTC, say the word CTC. Use the Salary Hike Calculator to model different percentages, and the In-Hand Salary Calculator to show what the revision means monthly.
Appraisal cycles slip. If the revision takes effect from 1 April but the letter is issued in July, the employee has been paid at the old rate for three months and the difference is owed as arrears.
Arrears are taxable in the year they are received, which can push the employee into a higher slab in that year even though the money relates to earlier months. Relief is available by recomputing the tax as if the arrears had been received in the years to which they relate. From tax year 2026-27 this relief sits in section 157 of the Income-tax Act, 2025 and is claimed in Form 39, which replaced Form 10E. For arrears received in 2025-26, the old section 89 and Form 10E still apply. File the form before the income tax return; relief claimed without it is usually disallowed at processing.
Caveat worth flagging: commentary is divided on whether this relief (section 89, now section 157) can be claimed alongside the new tax regime. Some advisers treat it as a computational mechanism that survives the regime choice, others treat it as a relief that does not. Employees should confirm their own position with a tax adviser before relying on it.
The Code on Wages, 2019, in force since 21 November 2025, defines wages as basic pay, dearness allowance and retaining allowance, and caps the excluded components (HRA, conveyance, special allowance, overtime, bonus) at 50 percent of total remuneration. Anything above that cap is added back and treated as wages, which raises the base for provident fund, gratuity and statutory bonus regardless of how the salary slip is labelled.
Plenty of Indian salary structures still carry basic at 25 to 35 percent of CTC from the pre-code era. An increment is the cleanest moment to correct that, because the higher basic can be absorbed inside the raise instead of appearing as a reduction in take home pay. This generator defaults basic to 50 percent of the revised CTC and warns you if you set it lower.
| Component | How it is computed here | Note |
|---|---|---|
| Basic pay | Your chosen percentage of revised CTC, default 50 percent | Basic plus DA is the statutory wage base |
| House rent allowance | 50 percent of basic in a metro city, 40 percent elsewhere | Matches the HRA exemption ceiling (50 percent metro, 40 percent elsewhere) under the old tax regime |
| Employer provident fund | 12 percent of basic, or 12 percent of Rs. 15,000 if you pick the ceiling option | The provident fund wage ceiling stands at Rs. 15,000 per month |
| Gratuity provision | 4.81 percent of basic | 15 days of pay per completed year expressed monthly: (15 divided by 26) divided by 12 |
| Employer ESI | 3.25 percent of gross, only where gross is up to Rs. 21,000 a month | Applies where the establishment is covered by the ESI scheme |
| Special allowance | The balancing figure that makes the components add up to CTC | Kept inside the 50 percent excluded-component cap |
The summary above the letter also shows the employee provident fund deduction at 12 percent of the same basic wage and the employee ESI share at 0.75 percent where applicable. Income tax and professional tax are not deducted, because both depend on the regime choice, declarations and the state.
| Step | Good practice timing | Why it matters |
|---|---|---|
| Rating conversations | First week of the effective month | The employee hears the outcome from the manager, not from the payslip |
| Increment letter issued | Before or during the effective month | Avoids arrears entirely and keeps TDS smooth |
| Payroll updated | Same month as the effective date | No catch-up entry, no spike in the arrears month |
| Letter filed | With the employee record | Needed for background verification and future revisions |
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Legal statements on this page were checked against these official texts in October 2026. This page is general guidance, not legal advice.
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Disclaimer: This generator produces a template increment letter and an indicative salary breakup for general guidance only. It is not legal, tax or payroll advice. The breakup excludes income tax and professional tax, and the arrears figure is a simple monthly difference that ignores mid-month joins, leave without pay and payroll cut-off rules. Have the final template reviewed against your company policy, your state rules and current law before issuing it.
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