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Free letter template · Word

Annual Increment Letter

An annual increment letter is issued at the end of the yearly appraisal cycle to confirm an employee's performance rating and the resulting increase in pay for the new financial year. It usually takes effect from 1 April or the company's appraisal date and includes a revised CTC annexure.

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[Company Logo][Company Name]

ANNUAL INCREMENT LETTER

Ref. No.:
[Reference Number]
Date:
[Date]

Private and Confidential
To,
[Employee Name]
Employee ID: [Employee ID]
[Designation], [Department]

Subject: Annual Increment for the Year [FY YYYY-YY]

Dear [Employee Name],
Thank you for your contribution during the appraisal period [DD/MM/YYYY] to [DD/MM/YYYY]. Based on the annual performance review completed with your reporting manager, [Reporting Manager], your overall rating is [Rating].

In line with our compensation policy and your rating, the management is pleased to grant you an annual increment of [Percentage]%. Your annual Cost to Company is revised from ₹[Previous CTC] to ₹[CTC] with effect from [Effective Date, e.g. 01/04/YYYY].

Annexure – Revised Compensation

ComponentRevised Monthly (₹)Revised Annual (₹)
Basic Salary[Basic Salary][Amount]
House Rent Allowance[HRA][Amount]
Leave Travel Allowance[Amount][Amount]
Special Allowance[Amount][Amount]
Employer PF[Amount][Amount]
Gratuity Provision[Amount][Amount]
Fixed CTC[Amount][Amount]
Target Variable Pay[Amount]
Total CTC[CTC]

If this letter reaches you after the effective date, the difference for the intervening months will be paid as arrears in the salary for [Month YYYY]. Your key result areas for the new year will be shared by your manager by [Date].

We look forward to another rewarding year together.

Warm regards,

For [Company Name]
[Authorised Signatory]
[Designation]
Acknowledged by
[Employee Name]
Date: [Date]

What this template includes

  • Appraisal period and final rating
  • Increment percentage based on the merit matrix
  • Revised annual CTC and effective date
  • Revised CTC table as annexure
  • Arrears note if letters are issued after the effective date
  • Goals reminder for the coming year

When to use it

  • Closing the yearly appraisal cycle for all employees
  • Mail-merging increment letters for the whole workforce
  • Communicating a merit increase linked to a rating scale
  • Recording the appraisal outcome in the personnel file

How to customise this template

  1. 1Replace the rating scale with your own (e.g. 1–5 or Exceeds/Meets)
  2. 2Set up mail-merge fields for name, rating, percentage and CTC
  3. 3Use 1 April or your appraisal effective date consistently
  4. 4Mention arrears month if payroll runs later than the effective date

HR tips

  • Discuss the rating with the employee before handing the letter
  • Ensure calibration is complete so letters are not reissued
  • Spot-check a sample of merged letters for errors
  • Issue all letters within the same week to reduce speculation

For HR & hiring managers

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Frequently asked questions

When are annual increments given in India?+

Many companies follow the financial year and make increments effective from 1 April, while others use the calendar year or the employee's joining anniversary.

Is annual increment mandatory?+

Private employers are generally not legally required to give annual increments unless an employment contract, settlement or policy promises it.

What if increment letters are issued late?+

If the effective date is 1 April but letters come later, the difference is paid as arrears in a stated payroll month.