CTC Is Not Your Salary
This guide explains the real math behind Indian salaries — no fluff, just facts.
What Is CTC (Cost to Company)?
CTC is the total annual cost a company incurs to employ you. It's an accounting metric, not your take-home salary. CTC includes everything — your gross salary, employer contributions, bonuses, benefits, and reimbursements.
CTC Breakdown Example (₹12,00,000 Annual)
* Actual in-hand varies based on tax regime, deductions, and state (Professional Tax)
Why CTC ≠ Take-Home
- Employer PF — Part of CTC but goes to your PF account (locked till retirement)
- Gratuity — Included in CTC but payable only after 5 years of service
- Variable Pay/Bonuses — Promised in CTC but may not be paid monthly or at all
- Tax Deductions — Income tax (TDS) is deducted from your gross salary
- Statutory Deductions — Employee PF, Professional Tax, ESIC
Typical Indian Salary Structure
Your fixed monthly salary (the amount used for calculating in-hand) is broken down into multiple components. Each component has different tax treatment and implications.
1. Basic Salary
Basic salary is the core component of your salary — typically 30-50% of CTC. Everything else (PF, HRA, gratuity, bonuses) is calculated as a percentage of Basic.
Why Basic Matters
- ✓ Higher basic = Higher PF contribution (retirement savings)
- ✓ Higher basic = Higher gratuity (lump sum after 5 years)
- ✓ Base for HRA calculation
- ✓ Forms core of salary structure
Companies Often Keep Basic Low
- ✗ Lower employer PF contribution (saves cost)
- ✗ Lower gratuity liability
- ✗ More salary as "allowances" (no PF deduction)
- ✗ Inflates CTC without increasing cost
Standard Basic Percentage
2. House Rent Allowance (HRA)
HRA is paid to cover your rent expenses. It's typically 40-50% of Basic Salary.
HRA Tax Exemption (Old Regime Only)
If you live in a rented house, you can claim HRA exemption to reduce taxable income. The exemption is the lowest of:
- 1. Actual HRA received
- 2. Rent paid minus 10% of Basic Salary
- 3. 50% of Basic (metro cities) or 40% of Basic (non-metro)
Note: HRA exemption is NOT available in the New Tax Regime
3. Other Allowances
Companies add various allowances to make up your gross salary. Common allowances include:
| Allowance | Tax Treatment | Notes |
|---|---|---|
| Special Allowance | Fully Taxable | Balancing component in CTC |
| Conveyance Allowance | Exempt up to ₹19,200/year | Old regime only |
| LTA (Leave Travel) | Exempt with proof | Only for travel in India |
| Meal Vouchers | Exempt up to ₹26,400/year | ₹50/meal, 2 meals/day |
| Medical Allowance | Fully Taxable | No exemption anymore |
Employer Contributions (Hidden CTC Components)
These are amounts your company pays or provisions for you, but they don't show up in your bank account monthly. They're part of CTC but not part of in-hand salary.
Provident Fund (PF)
PF is a retirement savings scheme. Both you and your employer contribute to your PF account.
How PF Works
Deducted from your salary monthly. Goes to your PF account. Reduces in-hand salary.
Employer contributes this to your PF. Part of CTC. Doesn't affect in-hand.
Example: If Basic = ₹40,000/month
- • Your PF deduction = ₹4,800/month (from salary)
- • Employer PF = ₹4,800/month (added to CTC, not to in-hand)
- • Total PF = ₹9,600/month goes to your PF account
PF Withdrawal
Gratuity
Gratuity is a lump sum payment made by the employer when you leave the company (voluntarily or involuntarily) after completing 5 years of continuous service.
Gratuity Formula: (Basic × 15) / 26 × Number of Years
Companies provision ~4.81% of Basic annually in CTC for gratuity. You receive it as a lump sum on exit.
Payslip Deductions (Statutory Contributions)
These are amounts deducted from your gross salary every month. They reduce your in-hand salary but serve specific purposes like retirement savings, insurance, or state taxes.
Employee PF (12% of Basic)
Reduces In-HandMandatory retirement savings. Goes to your PF account. Can be withdrawn on job change or retirement.
Professional Tax (₹2,000-₹2,500/month)
State-SpecificState tax levied on salaried professionals. Varies by state (e.g., Maharashtra: ₹2,500/year, Karnataka: ₹2,400/year). Not applicable in all states.
TDS (Tax Deducted at Source)
Income TaxMonthly advance tax payment deducted by employer based on your annual income and tax regime. The biggest deduction component for most people.
Income Tax & TDS Explained
Income tax is calculated on your taxable income, not your gross salary. Understanding the difference between gross income, taxable income, and tax liability is crucial.
Tax Calculation Flow
Gross Total Income
Salary + Bonuses + Other Income
Minus Exemptions
HRA, LTA, Meal Vouchers (Old Regime only)
Minus Standard Deduction
₹50,000 (Old) or ₹75,000 (New)
Minus Tax Deductions
80C, 80D, etc. (Old Regime has more options)
Taxable Income
This is the amount on which tax is calculated
Tax-Saving Deductions (80C, 80D, etc.)
Important: Deductions ≠ Payslip Deductions
Payslip Deductions (PF, TDS, PT) are amounts deducted from your gross salary.
Don't confuse the two!
| Section | What It Covers | Limit | Regime |
|---|---|---|---|
| 80C | PF, PPF, ELSS, Life Insurance, Home Loan Principal | ₹1.5 Lakh | Old only |
| 80D | Health insurance for self, family, parents | ₹25K-₹1L | Old only |
| 80CCD(1B) | Additional NPS contribution (over 80C) | ₹50,000 | Old only |
| 80CCD(2) | Employer NPS contribution | 10% of Salary | Both regimes |
| 24(b) | Home loan interest deduction | ₹2 Lakh | Old only |
Old vs New Tax Regime
India offers two tax regimes. You must choose one at the start of the financial year.
Old Regime
More deductions & exemptions available
Best for: People with investments, home loans, health insurance
New Regime (Default FY 2023-24+)
Lower tax rates, minimal deductions
Best for: Fresh graduates, low investment, simple tax planning
CTC vs In-Hand: The Real Math
Let's calculate actual monthly in-hand salary from a ₹12 LPA CTC offer (typical mid-level IT job in India).
Example: ₹12,00,000 CTC Breakdown
CTC Components (Annual):
Monthly In-Hand Calculation:
Key Insight: From ₹12L CTC, you get only ~₹63K-₹67K monthly in-hand. That's roughly 63-67% of your gross salary or 52-56% of CTC per month.
Calculate Your Actual In-Hand Salary
Use our calculator below to see your exact monthly in-hand salary based on your CTC and salary structure. Adjust the sliders to match your offer and see real-time results.
Common Salary Mistakes to Avoid
What NOT to Do
- Don't compare job offers based on CTC alone — compare actual monthly in-hand salary
- Don't assume CTC ÷ 12 = Monthly salary (you'll be disappointed)
- Don't ignore variable pay/bonuses — ask about payout history and conditions
- Don't choose tax regime randomly — calculate and compare both options
- Don't forget about Professional Tax if moving to a different state
What TO Do
- Ask for detailed salary breakup (Basic, HRA, Allowances, PF, gratuity)
- Calculate in-hand salary for both tax regimes before accepting an offer
- Understand when bonuses/variable pay is paid (monthly, quarterly, annually?)
- Check PF calculation basis — some companies use capped ₹15K, others use actual basic
- Factor in rent, living costs, and savings after in-hand salary
How to Evaluate Job Offers (Beyond CTC)
Two offers with same CTC can have very different in-hand salaries. Here's what to compare:
| Factor | Company A | Company B |
|---|---|---|
| CTC | ₹12,00,000 | ₹12,00,000 |
| Basic % | 50% (₹6L) | 30% (₹3.6L) |
| Variable Pay | 10% (guaranteed) | 30% (performance) |
| PF Calculation | Actual Basic | Capped at ₹15K |
| Monthly In-Hand | ~₹68,000 | ~₹58,000 |
| Verdict | ✓ Better Structure | ✗ Lower Take-Home |
Variable Pay Reality Check
Variable pay/performance bonuses are often promised in CTC but not guaranteed. Ask these questions:
- • What's the average payout % in the last 3 years?
- • What % of employees actually receive full variable pay?
- • Is it paid quarterly, annually, or only on achieving targets?
- • Is there a minimum payout guarantee?
Final Thoughts
Understanding your salary structure empowers you to:
- Negotiate better — Focus on components that matter (Basic, fixed pay)
- Compare offers fairly — Look beyond the CTC number
- Plan taxes smartly — Choose the right regime and optimize deductions
- Budget realistically — Base your lifestyle on in-hand, not CTC
Use Our Calculator
Calculate Your In-Hand Salary →
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