CTC vs In-Hand Salary: What Gets Deducted and How to Calculate Take-Home Pay

Quick answer: CTC (cost to company) is everything an employer spends on you in a year. In-hand salary is what reaches your bank account. To get from one to the other, remove employer PF and any gratuity or insurance included in CTC to find gross salary, then deduct your own PF, professional tax and income tax. On a ₹12 lakh CTC with basic at 50%, take-home under the new regime is about ₹96,000 a month.

Try your own numbers in the in-hand salary calculator. Below, we explain each step so an offer letter never surprises you again.

Why CTC and take-home are different

An offer letter shows the total cost of employing you, because that is the figure the company budgets. But part of that cost never touches your salary account: it goes into your provident fund, towards gratuity you may receive years later, or to an insurer. Then the government and your own PF account take a share before salary is credited.

Think of it as three layers:

Step 1: remove employer contributions

Employer PF is 12% of basic pay plus DA. Many employers contribute on the full basic; others limit it to the statutory wage ceiling of ₹15,000, which caps it at ₹1,800 a month or ₹21,600 a year.

Gratuity is sometimes shown in CTC at 4.81% of basic, which is the annual cost of the 15-days-per-year formula. You will only receive it after five years of service (one year for fixed-term staff), so it is not part of monthly pay.

Group health or term insurance premiums paid by the employer are occasionally included too.

Step 2: what the gross salary contains

Gross salary is made up of fixed components:

• Basic pay: the foundation for PF, gratuity and often HRA and leave encashment. Under the labour codes, wages must be at least half of total remuneration, which is why many companies now set basic at 50% of CTC.
• House rent allowance: partly tax-free in the old regime if you pay rent. Use the HRA calculator to see how much.
• Special allowance: the balancing figure after other components, fully taxable.
• Other allowances: such as leave travel allowance, children's education allowance or meal cards, depending on policy.

Step 3: monthly deductions

Employee PF

Your own contribution is 12% of basic plus DA, deposited with EPFO alongside the employer's share. It is a deduction from take-home, but it is your money: it earns interest, 8.25% for FY 2025-26, and builds a retirement corpus. Project it with the EPF calculator.

Professional tax

Professional tax is levied by some states. It is small, usually ₹200 a month with a higher deduction in one month, and cannot exceed ₹2,500 a year. Karnataka, Maharashtra, West Bengal, Tamil Nadu, Telangana and Gujarat are among the states that levy it. Delhi, Haryana, Uttar Pradesh and Rajasthan do not.

Income tax (TDS)

Your employer estimates your tax for the year and deducts it evenly each month. For FY 2026-27 under the new regime:

Salaried employees get a ₹75,000 standard deduction. A rebate removes all tax when taxable income is up to ₹12 lakh, and marginal relief ensures that just above ₹12 lakh your tax is never more than the income over ₹12 lakh. A 4% health and education cess is added, and surcharge applies above ₹50 lakh.

The old regime has higher rates (5% from ₹2.5 lakh, 20% from ₹5 lakh, 30% above ₹10 lakh) and a ₹50,000 standard deduction, but allows deductions such as 80C (up to ₹1.5 lakh, including your PF), 80D health insurance, home loan interest, professional tax and the HRA exemption.

Worked examples

All three assume basic at 50% of CTC, PF on the ₹15,000 ceiling, no gratuity inside CTC, professional tax of ₹2,400 a year and the new regime.

If the ₹18 lakh employer contributes PF on the full basic of ₹9 lakh instead, both PF figures rise to ₹1,08,000 a year. Gross salary and tax fall, and monthly take-home drops to roughly ₹1,21,000, while about ₹1.73 lakh more goes into your PF account each year.

New or old regime?

The new regime is the default and suits most people, especially up to ₹12.75 lakh of salary where no tax is due. The old regime can still win if you have large deductions: high rent in a city that qualifies for the 50% HRA limit, a home loan, full 80C investments and health insurance. The only reliable way to know is to calculate both. Salaried employees can choose each year when filing the return.

Reading your offer letter

Before accepting an offer, ask for the annual break-up and check:

1. What percentage of CTC is basic, and is PF calculated on full basic or on ₹15,000?
2. Is gratuity, insurance or a joining bonus included in the CTC figure?
3. How much is variable pay, and how often and on what basis is it paid?
4. Are there reimbursements, such as fuel or phone, that need bills?

A clear offer letter answers all four. Your monthly salary slip should then show the same components.

For employers

Take-home questions are the most common HR ticket in the first month after joining. Showing an in-hand estimate with the offer, and running payroll on a system that applies the same salary structure every month, stops most of them. MizUp BMS handles attendance, leave, payroll and payslips together, so the salary an employee sees on day one is the salary they get on pay day.

Frequently asked questions