Glossary
Payroll terms, answered in one paragraph
18 terms Indian HR and finance teams look up, with the current rule, an example and how AdviHR applies it.
CTC (cost to company)
CTC is the total yearly cost an employer bears for an employee: gross pay plus the employer’s own contributions and benefits. Take-home pay is lower than CTC.
ECR (Electronic Challan cum Return)
The ECR is the monthly PF return and payment file employers upload to the EPFO portal. Each line is one member’s wages and contributions.
ESIC (Employees’ State Insurance)
ESIC is a health and benefits insurance scheme for employees earning up to ₹21,000 a month. The employee pays 0.75% of wages and the employer pays 3.25%.
Form 124 (Form 12BB)
Form 124, earlier Form 12BB, is the declaration an employee gives the employer of rent, home-loan interest and tax-saving investments, so TDS reflects them.
Form 16 (Form 130)
Form 16 is the certificate of tax deducted on an employee’s salary. From 1 April 2026 it is Form 130, issued through TRACES.
Full and final settlement (F&F)
Full and final settlement is the last payment to an employee who leaves: pay for the days worked, leave encashment, gratuity and any bonus, less notice recovery, statutory deductions and dues.
Gratuity
Gratuity is a lump sum paid when an employee leaves after long service. It equals last drawn monthly wages × 15 ÷ 26 × completed years of service, up to ₹20 lakh.
HRA exemption
HRA exemption lets an employee on the old tax regime exclude part of house rent allowance from tax: the least of the HRA received, 50% or 40% of basic, and rent paid minus 10% of basic.
Labour Welfare Fund (LWF)
The Labour Welfare Fund is a state-level contribution from employees and employers. Amounts and collection months differ by state, and some states do not have it.
Leave encashment
Leave encashment is payment for earned leave an employee has not used, usually at exit or year end, as the company policy allows.
Loss of pay (LOP)
Loss of pay is a deduction from salary for days an employee did not work and had no paid leave. Salary is paid only for the payable days out of the month’s working days.
Professional tax
Professional tax is a state tax on salaried employees, capped by the Constitution at ₹2,500 a year. Each state sets its own slabs, and some states do not charge it on salary.
Provident fund (PF)
Provident fund is a retirement savings scheme run by the EPFO. The employee pays 12% of PF wages and the employer pays 12% more, into the employee’s UAN-linked account.
Salary arrears
Arrears are pay owed for earlier months, usually because a raise is approved with an earlier effective date. They are paid with a later payroll run.
Statutory bonus
Statutory bonus is a yearly payment under the Payment of Bonus Act of between 8.33% and 20% of wages, for employees earning up to ₹21,000 a month who worked at least 30 days in the year.
Statutory wages (labour codes)
Under the labour codes, wages include basic pay and dearness allowance, and any other allowances above 50% of total pay are added back. So statutory wages are at least 50% of total pay.
TDS on salary
TDS on salary is income tax the employer deducts from pay each month, based on an estimate of the employee’s tax for the year, and deposits with the government.
UAN (Universal Account Number)
A UAN is a 12-digit number the EPFO gives each employee. It stays the same across jobs and links every PF account the person has.