CTC vs In-hand Salary: Where the Difference Goes
By Antuparthi Manoha Malik PaulPublished 3 October 20268 min read
Why your take-home pay is lower than your CTC: EPF, gratuity, professional tax, income tax and other components explained with an example.
An offer letter says ₹15 lakh, but your monthly bank credit is far less than ₹1.25 lakh. The gap isn't a mistake: CTC (cost to company) counts everything your employer spends on you, while in-hand salary is what's left after contributions and taxes. Here's where the difference goes.
What's inside CTC
- Basic salary — usually 35–50% of CTC. Many other components are calculated from it.
- Allowances — HRA, special allowance, LTA and others, paid monthly.
- Employer PF contribution — 12% of basic (or of the ₹15,000 wage ceiling), paid into your EPF account rather than your bank.
- Gratuity — about 4.81% of basic set aside each year, paid only if you leave after at least five years.
- Variable pay and benefits — bonuses, insurance premiums and similar items, which may be paid annually or not in cash at all.
From CTC to gross salary
Subtract the parts that never reach your payslip as cash — employer PF, gratuity and non-cash benefits. What remains is your gross salary.
From gross salary to in-hand pay
- Employee PF — another 12% of basic, deducted from your salary. It's your savings, just not available now.
- Professional tax — a state levy of up to ₹2,500 a year; some states don't charge it.
- Income tax (TDS) — deducted monthly by your employer, based on your estimated annual tax.
A worked example (FY 2026-27, new regime)
CTC ₹15,00,000, basic 40%, employer PF on full basic, gratuity included in CTC, professional tax ₹2,400:
| CTC | ₹15,00,000 |
| − Employer PF (12% of ₹6,00,000 basic) | ₹72,000 |
| − Gratuity (4.81% of basic) | ₹28,846 |
| Gross salary | ₹13,99,154 |
| − Employee PF | ₹72,000 |
| − Professional tax | ₹2,400 |
| − Income tax incl. 4% cess | ₹81,768 |
| In-hand per year | ₹12,42,986 |
| In-hand per month | ≈ ₹1,03,582 |
Tax here is calculated on gross salary minus the ₹75,000 standard deduction (₹13,24,154): nothing on the first ₹4 lakh, 5% on the next ₹4 lakh, 10% on the next ₹4 lakh and 15% on the remaining ₹1,24,154, plus 4% cess.
New regime or old regime?
The new regime has lower rates, a ₹75,000 standard deduction and a rebate that makes taxable income up to ₹12 lakh tax-free — but it doesn't allow most deductions. The old regime has higher rates but lets you claim HRA exemption, section 80C (up to ₹1.5 lakh including your PF), 80D health insurance, home-loan interest and more.
For the same ₹15 lakh CTC, claiming the full ₹1.5 lakh under 80C and ₹25,000 of other deductions under the old regime still results in about ₹1.71 lakh of tax — more than double the new-regime figure. The old regime tends to win only with large deductions such as a big HRA exemption or home-loan interest.
Why your payslip may differ
- Employers spread tax across the months remaining in the year, so TDS changes when you submit investment proofs or receive a bonus.
- Some employers cap PF at the ₹15,000 wage ceiling (₹1,800 a month), which raises take-home pay but lowers retirement savings.
- Variable pay is usually paid annually, so it isn't part of your regular monthly credit.
Estimate your own numbers with the salary calculator, and see what your PF grows into with the PF calculator. Tax rules change with each budget, so confirm details with your employer or a tax professional.