50% wages floor
Load a rise into allowances and past halfway the excess counts as wages anyway. The provident fund saving stops existing.
Source: Code on Wages 2019, s.2(y) proviso; MoLE FAQ, 16 Mar 2026
Free PDF kit
Salary Increment and Appraisal Letter Formats for Indian Employers
Eight formats covering a whole appraisal cycle, including the two most employers get wrong: the restructure, which has rules attached to it now, and the letter telling somebody their pay has not moved.
- Eight formats, blanks in square brackets
- What a restructure has to clear
- Includes the no-increment letter
Instant download. No card needed.
Attendo presents
Salary Increment & Appraisal Letter Kit
For Indian employers
8
letter formats
ATTENDO PRESENTS
What's inside
Eight letters, and the one nobody writes
Each format sits on its own page with the blanks in square brackets.
Formats 01 to 02
The increment itself
One for a straight rise, one for a rise where the component split also changes. The second is where the wages floor bites.
Formats 03 to 04
Promotion and confirmation
Role and pay together, and probation ending with a rise. Both restate the original joining date, which matters years later for gratuity.
Format 05
Backdated, with arrears
States the arrears separately from the revised monthly figure, and points the employee at the relief they can claim on them.
Formats 06 to 07
No rise, and a bonus
The letter that closes a cycle with pay unchanged, written to give a reason and a route back. Plus a bonus letter that cannot be read as a permanent rise.
Format 08
Salary restructure
Composition changes, total may not. The one to think hardest about, and the one the notice requirement is actually aimed at.
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Increments that reach payroll
Attendo (formerly Petpooja Payroll) holds the revised salary, the effective date and the arrears, so the payslip follows the letter.
Why this matters
An increment is not just a bigger number
It is the one moment in the year when a salary structure gets rewritten, and three rules attach to that moment.
The first is the wages floor. Across the labour codes, wages means basic pay plus dearness allowance plus retaining allowance, and if everything excluded from that comes to more than half of total pay, the excess is added back and counts as wages anyway. The old habit of granting a rise mostly as allowances, to hold down the provident fund and gratuity base, therefore stops working once you pass halfway. What you are left with is a more complicated payslip and no saving.
The second is notice. Section 40 of the Industrial Relations Code 2020 says no employer proposing any change in the conditions of service of a worker, in a matter specified in the Third Schedule, may effect it without written notice and twenty one days. The first three items in that Schedule are wages, the employer's provident fund contribution, and compensatory and other allowances. A restructure moves all three at once. Note also that the section says any change, not any adverse change. Nobody serves notice before paying somebody more and the provision is plainly not aimed at that, but a revision that cuts basic pay or leaves someone worse off on retirement benefits is squarely within it, and appraisal season is when those get done.
One limit on all of that. These rules run on the word worker, which excludes anyone employed mainly in a managerial or administrative role and any supervisor paid more than eighteen thousand rupees a month. For those people the contract governs rather than the Code, and the letters here work just as well, but the notice point does not apply to them. The third is arrears. Appraisals run late, effective dates get backdated, and the catch-up money lands in one month at the employee's marginal rate. They can claim relief so it is taxed as though it had arrived on time. The claim is the employee's to make, not yours, but the letter is the natural place to tell them it exists.
Everything a revised salary touches moves with it. The overtime rate, which our overtime calculation template works out from the same definition of wages. The leave encashment rate, in the leave encashment calculator. And the wage slip itself, from the effective month. The letter is the easy part of an increment.
Preview
Eight letters, eight different jobs
The commonest mistake in an appraisal cycle is sending the right words in the wrong document. This is the decision table the rest of the file follows.
- Each row says when to use the letter and the one thing to watch for before it goes out.
- Formats 02 and 08 rewrite the structure, which is where the rules attach. The rest raise pay without touching the split.
- A ten-point checklist runs at the end, covering the things that are cheap to fix now and expensive in three months.
| Letter | Use it when | Watch for | Structure changes? | Format | Page |
|---|---|---|---|---|---|
| Salary increment | Pay up, split unchanged | Basic still clears the floor | No | 01 | 04 |
| Increment with breakup | Pay up, split changes | The 50% rule | Yes | 02 | 05 |
| Appraisal, no rise | Cycle closes flat | Give a reason | No | 06 | 09 |
| Salary restructure | Composition changes | Notice under s.40 | Yes | 08 | 11 |
| All eight | Plus a checklist | 13 |
Key stats
Three rules that attach to a raise
21 days on a restructure
Changing conditions of service in a Third Schedule matter needs written notice first. A plain rise is not what this is aimed at.
Source: Industrial Relations Code 2020, s.40, Third ScheduleForm 39 for arrears
A backdated rise is taxed when paid, but the employee can spread it back. It used to be Form 10E.
Source: Income-tax Rules 2026, rule 73; relief under s.157(1)
Common mistakes
6 Increment Letter Mistakes Indian Employers Make
Hiding the rise in allowances
Past halfway the excess counts as wages regardless, so the provident fund and gratuity base does not stay down. You get the complexity without the saving, and an employee who cannot follow their own payslip.
Not warning that net pay can fall
Raise the basic and the provident fund deduction rises with it. Cost to company goes up, take-home goes down, and nobody said so. That conversation is much easier before the payslip than after.
Skipping the no-increment letter
Saying nothing leaves the outcome undocumented, so there is no record of what was decided or why. A letter with a reason and a route back gives both sides something to point at next cycle.
Bonus wording that becomes permanent
A bonus letter that does not say one-time and discretionary is very hard to withdraw after three years of paying it. One sentence at the end of the letter is the whole difference. It is also worth saying that a discretionary bonus is separate from any statutory bonus you owe, which the file does and most templates do not.
Promotion letters that reset service
Gratuity turns on continuous service from the original date of joining. A promotion letter that reads like a fresh appointment leaves your own records disagreeing about when service began. Restate the joining date and they do not.
Dating the letter before telling payroll
The effective date drives the provident fund base, the wage slip and any arrears. Agreeing it with payroll after the letter is signed means at least one month is processed on the wrong figures.
Comparison
What the free formats leave out
A format you find online
One letter, one paragraph
- Only the happy case, a straight rise
- Nothing about the component split
- No letter for a cycle with no increment
- Bonus wording that becomes an entitlement
- Silent on arrears and the relief on them
Free either way
This kit
Eight formats, whole cycle
- Rise, promotion, confirmation, restructure
- Breakup tables, and the floor they must clear
- Format 06 is exactly that letter
- Says one-time and discretionary, in terms
- Arrears stated separately, with Form No. 39 named
Get all eight formats
One PDF, eight letters, plus the ten-point checklist. Short form, instant download.
FAQ
Common questions
Is this increment letter kit really free? +
Yes, completely. No card and no trial. The form asks for your name, work email, phone and city, then the file downloads straight away. The Attendo team may follow up about payroll software, and you are free to say no thanks.
What should a salary increment letter contain? +
The revised figure, the effective date, and the component breakup if the structure has changed. Beyond that, three things people leave out: that other terms are unchanged, the original date of joining where a promotion is involved, and a warning that net pay can move differently from cost to company when the split changes.
Can we give an increment mostly as allowances to keep PF down? +
Not past a point. Since the labour codes came into force, if the excluded allowances come to more than half of total pay, the excess counts as wages anyway for provident fund and gratuity. So loading a rise into allowances stops producing the saving once you cross halfway, and you are left with a more complicated payslip for nothing.
Do we need to give notice before changing a salary structure? +
Possibly. Section 40 of the Industrial Relations Code 2020 says an employer proposing a change in the conditions of service of a worker, in a matter listed in the Third Schedule, must give written notice and wait twenty one days. Nobody serves notice for a straightforward pay rise and the section is not aimed at that. A restructure that leaves someone worse off is a different question, and worth taking advice on before the letter goes out.
How are arrears from a backdated increment taxed? +
They are taxed in the year they are received, which can push the employee into a higher rate than would have applied had the money arrived on time. They can claim relief so the tax is worked out as though it had. That is section 157(1) of the Income-tax Act 2025, claimed on Form No. 39. It was section 89 and Form 10E before the 1961 Act was repealed on 1 April 2026; the calculation is the same. The employee claims it, not you, but the letter should tell them it exists.
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About Attendo
Attendo, formerly Petpooja Payroll, is payroll and attendance software used by more than 40,000 businesses in India. It holds the revised salary, the effective date and the arrears, so payroll follows the letter instead of chasing it. See what it does, or browse all the free HR templates.
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Revised salary, effective date and arrears in one place. Nothing retyped.
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