CTC vs in-hand salary: how to read your offer letter
Basic, HRA, PF, gratuity, variable pay and tax: what each line in a CTC breakup means, and how ₹12 lakh becomes ₹88,000 a month.
An offer letter says ₹12,00,000 CTC. The first payslip shows ₹87,800. Nothing went wrong; the two numbers measure different things. Here is what sits between them, line by line, and how to estimate your own take-home before you accept.
What CTC includes
Cost to Company is what the employer budgets for you in a year. It always contains your gross salary, and usually also:
- Employer’s PF contribution: 12% of basic, paid into your EPF account. It is your money, but you cannot spend it monthly.
- Gratuity provision: 4.81% of basic set aside for the gratuity you receive after five years of service.
- Insurance premiums, food coupons, gym or phone benefits: real costs to the company, not cash to you.
- Variable pay or performance bonus: often quoted at 100% target. Ask how much was actually paid out last year.
Strip these out and you have your gross salary, the figure your monthly deductions are computed on.
The typical structure
| Component | Typical share | Notes |
|---|---|---|
| Basic | 40–50% of CTC | Drives PF, gratuity and HRA limits |
| HRA | 40–50% of basic | Tax-exempt to the extent you pay rent (old regime) |
| Special allowance | balancing figure | Fully taxable |
| LTA, telephone, books | small | Exempt against bills under the old regime |
| Employer PF | 12% of basic | Inside CTC, not paid to you |
| Gratuity | 4.81% of basic | Inside CTC, paid after 5 years |
A higher basic means more forced savings and a smaller monthly credit; a lower basic means the opposite. The new labour codes push basic plus DA to at least 50% of pay, so structures with 30% basic are disappearing.
The deductions on your payslip
- Employee PF: another 12% of basic (₹1,800 a month if your employer applies the ₹15,000 ceiling, more if PF is on full basic).
- Professional tax: ₹200 a month in most states, ₹2,500 a year at most; nil in Delhi, UP, Haryana, Rajasthan and a few others.
- Income tax (TDS): computed on your projected annual taxable salary under the regime you declare. Under the new regime salaries up to ₹12.75 lakh attract no tax at all; above that the slabs apply.
Worked example: ₹12 lakh CTC
Basic 50% = ₹6 lakh. Employer PF ₹72,000 comes off the top, leaving gross salary of ₹11.28 lakh. Employee PF takes another ₹72,000, professional tax ₹2,400, and income tax is zero because taxable income after the ₹75,000 standard deduction is under ₹12 lakh. Annual in-hand: ₹10.53 lakh, or about ₹87,800 a month. If gratuity is also inside the CTC, subtract ₹28,860 more a year, or about ₹2,400 a month.
At ₹20 lakh CTC with the same structure, income tax of roughly ₹1.67 lakh appears and the monthly figure is about ₹1.33 lakh. The in-hand salary calculator lets you change every assumption and see the full breakup.
Questions to ask before accepting
- Is variable pay inside the CTC, and what percentage was paid last year?
- Is PF on full basic or the ₹15,000 ceiling?
- Are gratuity and insurance premiums counted in CTC?
- What is the basic percentage? It sets your HRA exemption ceiling, which you can check with the HRA calculator.
- Is there a joining bonus with a clawback period?
Two offers with identical CTC can differ by ₹5,000–8,000 a month in cash. Compare in-hand, not CTC.