An increment letter states the employee's name, code and designation, the effective date, the current and revised annual CTC, the percentage increase, and a table of old and new components (basic, HRA, allowances, employer PF). If the designation changes, say so. Mention arrears if the effective date is in the past, and note that other terms of the appointment remain unchanged.
Increment letter format
[COMPANY LETTERHEAD] Date: [DATE] Ref.: [REF. NO.] PRIVATE AND CONFIDENTIAL To, [EMPLOYEE NAME] Employee code: [CODE] [DESIGNATION], [DEPARTMENT] Subject: Revision of salary with effect from [EFFECTIVE DATE] Dear [NAME], In recognition of your performance during [REVIEW PERIOD], we are pleased to inform you that your annual cost to company (CTC) has been revised from Rs. [OLD CTC] to Rs. [NEW CTC] (Rupees [NEW CTC IN WORDS] only), an increase of [X]%, with effect from [EFFECTIVE DATE]. [With effect from the same date, your designation will be [NEW DESIGNATION].] The revised break-up is: Component (annual, Rs.) Current Revised Basic salary [ ] [ ] House rent allowance [ ] [ ] Special allowance [ ] [ ] Gross salary [ ] [ ] Employer PF contribution [ ] [ ] [Gratuity provision] [ ] [ ] Total CTC [ ] [ ] [Arrears for [MONTHS] will be paid with the salary for [MONTH].] All other terms and conditions of your appointment remain unchanged. Your revised salary is confidential and should not be discussed with colleagues. We thank you for your contribution and look forward to your continued growth with us. For [COMPANY NAME] [NAME] [DESIGNATION] Acknowledged: ______________ [EMPLOYEE NAME] Date: [ ]
How to fill it
- Start from the new CTC and rebuild the components with the salary calculator, keeping basic at about half of total pay.
- Recompute employer PF: if basic crosses ₹25,000, PF stays capped at ₹3,000 a month unless the employee contributes on higher wages.
- Check ESI: a raise that takes gross wages above ₹21,000 ends ESI only from the next contribution period (1 April or 1 October). Until then, deduct on the actual higher wages.
- Check the professional tax slab for the state (for example, crossing ₹25,000 in Karnataka or ₹20,000 in Telangana).
- If the effective date is in the past, compute arrears including PF on the arrears of basic.
Common mistakes
- Only a percentage, no table. Employees then compare an increase in CTC with their in-hand and feel short-changed.
- Raising only allowances. Under the Labour Codes, if allowances exceed 50% of pay, the excess counts as wages for PF and gratuity, so the saving disappears and the letter is wrong.
- Ignoring arrears PF. PF is due on arrears of basic and DA in the month they are paid.
- Effective date before the letter with no arrears line.
Legal points
There is no general legal right to an annual increment, but once communicated the revised pay is a term of employment and cannot be cut unilaterally. State governments revise minimum wages and variable DA periodically, typically twice a year; those revisions apply automatically, even without an increment letter. The Code on Wages, 2019 prohibits discrimination in wages on the ground of gender for the same or similar work. Revised wages feed into PF and ESI the same month.
FundRaksha HR applies revisions from the effective date, works out arrears with PF and ESI on them, and shows the new structure on the next salary slip.
Sources
Last reviewed: 2026-10-21. Information for Indian businesses; not legal advice.