In this article
When an offer letter says ₹12 lakh, most people divide by twelve and plan for ₹1 lakh a month. The first salary credit is a shock. Nobody lied. CTC stands for cost to company, and it counts several things the company spends on you that never pass through your hands.
The assumptions
To keep the arithmetic clear, we use a simple structure. Real offer letters vary, and some include variable pay, insurance premiums, meal cards or joining bonuses.
- CTC ₹12,00,000 a year.
- Basic salary is 40% of CTC: ₹4,80,000 a year (₹40,000 a month).
- Employer PF is 12% of basic: ₹57,600 a year.
- Employee PF is also 12% of basic: ₹57,600 a year.
- Gratuity provision is 4.81% of basic: ₹23,088 a year.
- Professional tax is ₹2,400 a year (₹200 a month). It depends on the state, and some states charge none.
- Income tax is not included yet, because it depends on your regime and deductions.
From CTC to the bank, step by step
Gross salary is what the company pays out as monthly salary (₹93,276). After your own PF and professional tax, ₹88,276 a month remains before income tax.
Two things in that picture are not lost. The employer PF and your own PF both go into your provident fund account, and the gratuity provision is paid when you leave after the required service. They are part of what you earn, they are just not spendable today. Our gratuity guide shows how large that gratuity can become.
Why the basic share matters
Provident fund and gratuity are both calculated on basic pay. If a larger part of your CTC is labelled basic, more goes into PF and gratuity and less is available as cash each month. The money is not gone, but you cannot spend it now.
Each 10-point step in the basic share changes take-home by about ₹2,900 a month. In return you build a bigger PF and gratuity.
Other CTC levels
| CTC a year | Basic 30% | Basic 40% | Basic 50% |
|---|---|---|---|
| ₹6 lakh | ₹45,479 | ₹44,038 | ₹42,598 |
| ₹12 lakh | ₹91,157 | ₹88,276 | ₹85,395 |
| ₹18 lakh | ₹1,36,836 | ₹1,32,514 | ₹1,28,193 |
| ₹24 lakh | ₹1,82,514 | ₹1,76,752 | ₹1,70,990 |
Using the same assumptions as above, with ₹200 a month of professional tax. About 85 to 92 paise of every CTC rupee reaches you before income tax.
Where income tax comes in
Income tax is taken from your gross salary through the year (TDS). How much depends on the tax regime you choose, your deductions and any other income. Employers apply the regime you declare, and many switch you to the default if you do not choose. That is why two colleagues with the same CTC can see very different take-home.
Questions to ask before accepting an offer
- What is the basic salary and what is the PF base? Some employers calculate PF on the full basic, others on a ceiling of ₹15,000 of wages. The difference is large.
- Is any part of the CTC variable? A bonus that is “up to” a figure may be paid late, in part or not at all.
- Are insurance, food coupons or reimbursements inside the CTC? These are real benefits, but they do not arrive as cash.
- How much is the joining or retention bonus, and is it repayable? If you leave early you may have to give it back.
- What is the notice period buyout? It can matter more than a ₹50,000 difference in pay.
What to do with the difference
Once you know your real monthly figure, build the budget from it, not from the CTC. Set aside an emergency fund first, and then start a monthly investment. Even a small one adds up, as shown in start at 25 or 35.
Questions people ask
How do I convert CTC to in-hand salary?
Subtract the employer PF, gratuity and any other employer-side benefits to get gross salary. Then subtract your own PF, professional tax, income tax and any other deductions.
Why is my in-hand salary less than CTC divided by 12?
CTC includes employer PF, gratuity and benefits that are not paid in cash each month, and your own PF, taxes and professional tax are deducted before the credit.
Does a higher basic salary reduce in-hand pay?
Usually yes, because PF and gratuity are calculated on basic. The money goes to your PF and gratuity instead of your bank account.
Is PF part of my salary?
Yes. Both the employer and employee contributions are your money and earn interest in your PF account, but you cannot spend them until withdrawal conditions are met.
What is the professional tax?
It is a state tax on salaried people. The amount depends on the state and slab, and some states do not charge it.