CTC vs in-hand salary: where the money actually goes
Last updated: 2026-08-14
An offer letter says Rs 12,00,000. The salary account receives about Rs 93,800 a month, which is Rs 11,25,000 across the year. The Rs 75,000 gap is not a deduction anyone hid from you. Most of it is money paid in your name that was never going to arrive as cash.
This guide walks one package all the way from cost to company down to the figure in the bank, using a common structure: basic at half of CTC, provident fund capped at Rs 1,800 a month, gratuity inside CTC, Karnataka professional tax, new tax regime.
The three-stage waterfall
Indian salary has three stages, not two. Most people know gross and net. The stage that causes the confusion is the one above gross, where employer-side costs sit inside the quoted package.
| Stage | Line | Amount |
|---|---|---|
| CTC | Cost to company | Rs 12,00,000 |
| Less | Employer provident fund | −Rs 21,600 |
| Less | Gratuity accrual at 4.81% of basic | −Rs 28,860 |
| Gross | Annual gross salary | Rs 11,49,540 |
| Less | Your own provident fund | −Rs 21,600 |
| Less | Professional tax | −Rs 2,500 |
| Less | Income tax after the Section 87A rebate | Rs 0 |
| Net | Reaches your bank account | Rs 11,25,440 |
Two things are worth noticing. The employer-side block costs you Rs 50,460 of headline package before a single tax applies. And at this salary the income tax is nil, because the Section 87A rebate covers a taxable income of Rs 10,74,540 comfortably.
What sits inside CTC but never reaches you
Every item below is real money, and none of it is cash this month.
| Component | Typical size | When you see it |
|---|---|---|
| Employer provident fund | Rs 1,800/month or 12% of basic | On retirement, or on withdrawal |
| Gratuity accrual | 4.81% of basic | On leaving, normally after five years |
| Employer NPS | Up to 14% of basic | At retirement, partly as annuity |
| Group medical insurance | Rs 5,000 to Rs 25,000 | Only if you claim |
| Employer ESI | 3.25% of gross below the ceiling | Only on a medical claim |
A package where employer provident fund sits outside CTC is worth more than the same headline number with it inside. That single toggle is the most common reason two offers quoting identical CTC pay differently, and it is the first thing to check on an offer letter.
Why the basic percentage matters more than it looks
Basic salary is the base for provident fund, for gratuity and for the house rent allowance exemption. A structure with a low basic pays more cash now and accumulates less for later; a high basic does the reverse. Neither is generous or stingy on its own, but they produce very different numbers from the same CTC.
Since 21 November 2025 there is a limit on how far that can be pushed. Under the Code on Wages, where allowances exceed half of total remuneration, the excess is added back to wages for statutory purposes, so provident fund and gratuity are computed on a higher base than a basic-light structure would otherwise produce. Read what the labour codes did to Indian salary structures for how that plays out.
Common questions
Is a higher CTC always a better offer?
No. Two offers at the same CTC can differ by more than a lakh a year in cash depending on whether employer provident fund is inside or outside the package, how much of it is variable pay, and how the basic is set. Compare on monthly in-hand, not on the headline.
Does variable pay count in my monthly salary?
Normally not. Variable pay is usually paid once or quarterly, so it should be treated as a separate payout rather than divided into the monthly figure. The tax on it is also withheld in the month it is paid, which makes that payslip look unusual.
Why is my first payslip lower than expected?
If you joined part-way through the financial year, your employer projects the whole year of tax and collects it across the months that remain, so fewer months carry the same annual liability. See how monthly TDS is worked out.
Can I ask for employer PF outside CTC?
It is a negotiable structural point at many employers and it raises your gross without changing the headline package. It is a more effective ask than a small CTC increase, because it changes cash rather than the number on the letter.
Run your own package through the in-hand salary calculator to see the same waterfall on your numbers, or read new regime versus old regime next.
Related reading
The rest of this series, and the calculators that let you run the idea on your own numbers.
More india salary and tax guides
Try it with your figures
See also all guides, every calculator, and the calculation methodology behind these estimates.