CTC (Cost to Company) is the total annual amount a company spends on an employee, including basic salary, allowances, employer EPF, gratuity provision, and any other benefits. It is always higher than what the employee actually receives.

What is the difference between gross salary and net salary?

Gross salary is your total salary before deductions. Net salary (or in-hand salary) is what you receive after deducting employee EPF, professional tax, and income tax (TDS).

In-hand salary explained: CTC vs gross vs take-home pay

Q: What is gross salary?

Gross salary is CTC minus the employer's EPF contribution. It is the salary the company directly pays to the employee before income tax and employee PF are deducted.

Updated June 2026 · FY 2026-27 (AY 2027-28)

You accepted a job offer with a CTC of ₹15 lakhs. Your friend with the same CTC gets a different monthly credit than you. Your colleague's payslip shows a "gross salary" that's lower than his CTC. What is going on?

This guide breaks down every number on your payslip — CTC, gross salary, net salary, and in-hand pay — so you know exactly where each rupee goes.

What is CTC?

CTC stands for Cost to Company. It is the total amount your employer spends on you in a year — every rupee, including what never reaches your bank account. A typical CTC includes:

Basic salary
House Rent Allowance (HRA)
Special allowance / performance pay
Employer's EPF contribution (12% of basic)
Gratuity provision (~4.81% of basic)
Medical / food / transport allowances
Any company-provided insurance or other benefits

The employer EPF contribution and gratuity provision are the two components that inflate CTC the most — they go into your PF account and a future payout, not your monthly salary. This is why your in-hand pay always looks lower than your CTC suggests.

CTC → Gross salary

Remove the employer's EPF contribution (12% of basic pay) from your CTC and you get your gross salary — the salary your company actually processes as pay, before your own deductions. If your company also includes gratuity inside CTC, that is removed too.

Example: CTC ₹12,00,000 — Employer EPF ₹57,600 (12% of ₹4,80,000 basic) = Gross salary ₹11,42,400

What gets deducted from gross salary?

Three deductions come out of your gross salary before you receive it each month:

1. Employee EPF (12% of basic)

You contribute 12% of your basic pay to your EPF account every month. This is deducted from your gross salary before payment. On a ₹40,000 basic, that's ₹4,800/month going to EPF. Over a career it builds a meaningful retirement corpus — but it reduces monthly cash in hand.

2. Professional tax

Several states levy a small tax on salaried employees: Tamil Nadu, Maharashtra, and Karnataka charge ₹2,400 per year (₹200/month). Delhi, Haryana, and several other states levy no professional tax at all.

3. Income tax (TDS)

Your employer estimates your annual tax for the year, divides it by 12, and deducts it as TDS every month. This is the largest variable deduction and depends on your income level, your chosen tax regime, and any deductions you declare to your employer. For FY 2026-27, income up to ₹12,75,000 attracts zero tax under the new regime.

The full breakdown with numbers

Component	Example (₹12L CTC, 40% basic, TN state)
Annual CTC	₹12,00,000
Less: Employer EPF	−₹57,600
Gross salary	₹11,42,400
Less: Employee EPF	−₹57,600
Less: Professional tax (TN)	−₹2,400
Less: Income tax + cess (new regime)	−₹0 (below ₹12.75L threshold)
Annual take-home	₹10,82,400
Monthly take-home	₹90,200

Use our in-hand salary calculator to compute this for your exact CTC, basic percentage, state, and deductions.

New regime vs old regime — which affects your take-home more?

At ₹12L CTC, both regimes may give similar or even identical tax (zero, in many cases). But as CTC rises above ₹15L, the tax regime choice increasingly matters. The new regime has lower slab rates and a ₹75,000 standard deduction but no deductions. The old regime has higher rates but allows 80C (up to ₹1.5L), HRA exemption, and home-loan interest.

As a rough guide: if your total deductions are below ₹2.5 lakh, the new regime is usually better. Above ₹4 lakh in deductions, the old regime often wins. Our salary calculator shows both side by side for your numbers.

How your salary structure is decided

Most companies in India split your CTC into several named components. How they split it has a direct impact on your tax efficiency and monthly take-home.

Basic salary

Basic is typically 40–50% of gross salary and is the foundation of your pay. EPF contributions (12% from both you and your employer) are calculated on basic, HRA is set as a percentage of basic, and gratuity accrues at 4.81% of basic per year. A higher basic means more forced savings through EPF but also higher HRA potential — which helps if you pay rent. A lower basic means smaller EPF deductions and more money parked in "special allowance," which hits your bank account every month but is fully taxable.

House Rent Allowance (HRA)

Usually 40–50% of basic. The HRA you receive is not automatically tax-free — only the exempt portion escapes tax. The exemption is the lowest of three amounts: HRA received, actual rent paid minus 10% of basic, and 50% of basic (metro cities) or 40% of basic (non-metro). Under the new tax regime, HRA exemption is not available at all — whatever HRA you receive is added to your taxable income.

Special allowance

The residual: whatever is left after basic, HRA, and any other named allowances are assigned. Fully taxable under both regimes, with no exemption. Many companies put a large chunk of salary here for simplicity, but it offers no tax advantage. Some employers include performance-linked components here as well.

Other allowances

Some employers include Leave Travel Allowance (LTA), meal vouchers, vehicle reimbursement, or phone and internet allowance in the CTC. These have varying tax treatment under the old regime — LTA for two journeys in a four-year block is exempt, meal vouchers have a partial exemption, and so on. Under the new regime, most allowance exemptions do not apply. Check your offer letter carefully to understand exactly what your CTC includes.

Why two employees with the same CTC can get different amounts in hand

If you and a colleague both earn ₹15 lakh CTC but receive different credits each month, one or more of these is usually the reason:

Different basic percentage: An employee with 50% basic has ₹7.5L basic vs ₹6L basic at 40%. EPF is 12% of basic, so EPF deductions differ by ₹18,000/year — that is ₹1,500/month less take-home for the person with higher basic.
Different tax regime choices: At ₹15L CTC, choosing old vs new regime can shift monthly TDS by ₹3,000–₹8,000 depending on deductions claimed.
Rent situation: The colleague claiming HRA exemption by paying rent in a metro city gets a significantly lower TDS than someone who owns their home or lives in company accommodation.
Home loan: Section 24(b) interest deduction (old regime) reduces taxable income by up to ₹2 lakh, cutting monthly TDS by up to ₹5,000.
State of posting: Professional tax varies — Maharashtra and Karnataka charge ₹2,400 per year; Delhi, Haryana, and several other states charge nothing.
Variable pay timing: If one colleague receives a quarterly incentive paid in lumps, their regular monthly salary will look smaller even though annual CTC is the same.

What happens to your take-home when you get a salary hike?

A hike in CTC ripples through several components, and the net effect on take-home is almost always less than the headline number suggests:

Basic increases → both your EPF and your employer's EPF go up, meaning more goes into your provident fund but less arrives in your bank account immediately
HRA increases (if linked to basic) → potentially higher HRA exemption if you pay rent, which partially offsets the tax impact
TDS increases, and it can jump sharply if the hike pushes you past the ₹12.75L zero-tax threshold into taxable territory — or from a 10% slab into a 15% or 20% slab
Gratuity accrual increases — not visible in your monthly credit, but a real financial benefit that accumulates over time

The practical result: a ₹2 lakh hike in annual CTC might only translate to ₹10,000–₹13,000 more per month in take-home rather than the ₹16,667 you might expect (₹2L ÷ 12) — because of higher EPF and TDS. Use our salary hike calculator to see the exact before and after for your specific situation.

Variable pay and bonuses

Variable pay (also called performance pay, incentive, or at-risk component) is common in private-sector jobs, especially in sales, IT services, and startups. A few things to understand clearly:

It may or may not be included in your quoted CTC: Some companies quote CTC inclusive of target variable pay; others quote fixed CTC only and pay bonuses on top. At the time of any offer, always ask explicitly: "Is this CTC fixed, or does it include variable pay at target?"
It is not guaranteed: Variable pay depends on individual and company performance. You might receive 70%, 100%, or even 120% of the target variable, depending on how the year goes.
Tax is applied at your slab rate: Variable pay is taxable as salary income in the financial year you receive it. If a large bonus lands in March, it is taxed in that financial year. Check whether your employer adjusts TDS correctly in the month the bonus is paid — sometimes they don't, leaving you to pay self-assessment tax later.
Joining bonus: Fully taxable in the year received. If you leave the company before the agreed tenure and return the bonus, you may be able to claim it as a deduction in the ITR filed for the year you returned it.

Frequently asked questions

What is CTC?

CTC (Cost to Company) is the total annual amount a company spends on an employee, including basic salary, allowances, employer EPF (12% of basic), gratuity provision, and any other company-paid benefits. It is always higher than what the employee actually receives in hand.

What is gross salary?

Gross salary is CTC minus the employer's EPF contribution (and gratuity if included in CTC). It is the salary figure your employer processes as pay. Employee deductions (EPF, tax, professional tax) are then taken from gross salary to give you your net or in-hand salary.

Why is my take-home much less than my CTC?

Three reasons: (1) Employer EPF (12% of basic) and gratuity provision sit inside CTC but don't come to you monthly. (2) Employee EPF (another 12% of basic) is deducted from your salary. (3) Income tax and professional tax are deducted monthly. Together these can reduce a ₹12L CTC to a ₹9–10L annual take-home.

Is bonus included in CTC?

It depends on the company. Some companies include performance bonus or variable pay in CTC as an "at-risk" component, usually 10–20% of CTC. Others pay it separately and it is not part of the fixed CTC. Always clarify whether the CTC quoted is with or without variable pay.

What percentage of CTC is typically basic salary?

Most companies in India set basic salary at 40–50% of gross salary (or CTC). Startups sometimes go higher (60–70%) to keep the salary structure simple; large corporations sometimes set it lower to reduce EPF liability. A lower basic means lower EPF contributions and potentially more cash in hand each month — but also lower HRA and lower gratuity accrual over your career.

Does my EPF contribution reduce my taxable income?

Under the old tax regime, yes — employee EPF contributions count under Section 80C (along with PPF, ELSS, LIC, etc.) up to a combined ceiling of ₹1.5 lakh per year. Under the new tax regime, the 80C deduction is not available, so your EPF contribution does not reduce taxable income. Either way, your EPF builds a retirement corpus earning 8.25% interest (FY 2025-26 rate), which grows tax-free inside the fund — a real benefit regardless of the immediate tax saving.

Disclaimer: Examples are illustrative and based on standard assumptions. Actual take-home will vary by company salary structure, applicable deductions, and individual tax situation. This is for informational purposes only and not tax advice.