Key points
- CTC includes costs your employer pays on your behalf — employer PF, gratuity, insurance — that never reach your bank account monthly.
- In-hand salary = gross salary − employee PF − professional tax − income tax (TDS).
- A ₹12 lakh CTC with basic at 40% gives about ₹88,000 a month in hand under the new regime.
- A higher basic raises PF and gratuity (good for savings) but lowers take-home pay.
What CTC includes
| Component | In CTC? | Paid to you monthly? |
|---|---|---|
| Basic salary | Yes | Yes |
| HRA and special/other allowances | Yes | Yes |
| Employer PF contribution (12% of basic) | Yes | No — goes to your EPF account |
| Gratuity (about 4.81% of basic) | Often | No — paid on leaving after 5 years |
| Group health insurance premium | Sometimes | No |
| Performance bonus / variable pay | Often | Only when paid, and may be less than 100% |
Worked example: ₹12 lakh CTC
Basic is 40% of CTC (₹4,80,000 a year). Employer PF is 12% of basic, ₹57,600, and gratuity is accrued at 4.81% of basic, ₹23,088. The gross salary paid to you is therefore ₹12,00,000 − ₹57,600 − ₹23,088 = ₹11,19,312.
From that, the employee PF contribution (₹57,600) and professional tax (₹2,400 in most states that levy it) are deducted. Under the new regime, taxable income is ₹11,19,312 − ₹75,000 standard deduction = ₹10,44,312, which is below ₹12 lakh, so income tax is nil after the rebate.
In-hand salary = ₹11,19,312 − ₹57,600 − ₹2,400 = ₹10,59,312 a year, or about ₹88,276 a month.
Why a higher basic lowers take-home pay
PF and gratuity are percentages of basic pay. When basic rises within the same CTC, more goes to PF (both the employee and employer shares) and gratuity, and less is paid out monthly. It is not lost — it builds your retirement savings — but it reduces in-hand pay.
The Labour Codes that came into force on 21 November 2025 define “wages” for PF and gratuity so that they must generally be at least half of total pay. Employers that kept basic low are restructuring salaries, which can reduce take-home pay while increasing retirement benefits.
Ways to improve take-home pay
- Compare the new and old regimes every year; choose the one with lower tax when filing.
- In the old regime, submit rent receipts for HRA and investment proofs on time so less TDS is deducted.
- Ask whether employer NPS contributions (deductible under 80CCD(2) in both regimes) can be part of your CTC.
- If your employer allows it, PF on the ₹15,000 wage ceiling rather than on full basic increases in-hand pay — at the cost of lower retirement savings.
Reading your payslip
- Earnings: basic, HRA, special allowance, other allowances — together your gross salary for the month.
- Deductions: employee PF (12% of basic, or of the ₹15,000 wage ceiling), professional tax where your state levies it, income tax (TDS), and any voluntary deductions such as VPF, meal cards or loan recoveries.
- Net pay: gross minus deductions — the amount credited to your bank.
- Employer contributions such as employer PF and gratuity usually do not appear as earnings, because they never pass through your hands; check your annual CTC letter for them.
Variable pay and joining bonuses
Many offers include a performance bonus inside the CTC. It is paid only if targets are met, often once a year, and sometimes at less than 100%. When comparing offers, compare the fixed pay separately. Joining bonuses frequently carry a clawback if you leave within a year, and both bonuses are fully taxable in the month they are paid, which can push TDS up that month.
Frequently asked questions
Is gratuity part of in-hand salary?
No. Gratuity is paid as a lump sum when you leave after at least five years of continuous service (one year for fixed-term employees under the Labour Codes). It is included in some CTCs but never in monthly pay.
Why is my in-hand salary different every month?
TDS is recalculated as the year progresses and as investment proofs are submitted, arrears and bonuses are paid, and unpaid leave is deducted. The total over the year is what matters.
How do I calculate in-hand salary from CTC?
Subtract employer PF, gratuity and any other employer-only costs from CTC to get gross salary; then subtract employee PF, professional tax and income tax. The CTC to in-hand calculator does this for both tax regimes.