CTC vs in-hand salary: decoding your offer letter
Cost to company includes money you never see. How to go from CTC to monthly take-home, what employer PF and gratuity do to the number, and the questions to ask before accepting an offer.
4 min read · Published 2026-10-31 · Last reviewed 2026-10-31
An offer letter says ₹12 lakh. Your first payslip says ₹96,000. Neither number is wrong; they measure different things. Cost to company (CTC) is everything the employer spends on you, including contributions that go to your retirement accounts and provisions you only receive if you stay long enough. In-hand pay is what reaches your bank after those contributions and taxes are taken out. This guide walks the ₹12 lakh down to ₹96,000 and shows which parts of a structure are negotiable.
The anatomy of a CTC
A typical private-sector structure:
| Component | Typical share | Cash to you? |
|---|---|---|
| Basic salary | 40–50% of CTC | Yes, taxable |
| House rent allowance | 40–50% of basic | Yes, partly tax-exempt under old regime |
| Special or flexible allowance | balancing figure | Yes, taxable |
| Leave travel allowance, meal, telephone | small fixed amounts | Yes, exempt under old regime with bills |
| Employer PF contribution | 12% of basic | No, goes to your PF account |
| Gratuity provision | 4.81% of basic | No, paid only after five years' service |
| Employer NPS contribution | 0–10% of basic | No, goes to your NPS account |
| Group insurance premiums | few thousand a year | No |
| Variable pay or bonus | 0–30% of CTC | Only if targets are met |
Gross salary is CTC minus the employer's contributions and provisions. Net or in-hand salary is gross minus your own deductions: employee PF, professional tax and income tax.
Walking through ₹12 lakh
Basic 40% of CTC, employer PF included in CTC, PF computed on the statutory ₹15,000 ceiling, no gratuity in CTC, new tax regime, ₹200 a month professional tax:
| Step | Annual |
|---|---|
| CTC | ₹12,00,000 |
| Basic (40%) | ₹4,80,000 |
| Employer PF (12% of ₹15,000 × 12) | − ₹21,600 |
| Gross salary | ₹11,78,400 |
| Employee PF | − ₹21,600 |
| Professional tax | − ₹2,400 |
| Income tax (new regime) | ₹0 |
| Net annual | ₹11,54,400 |
| Monthly in-hand | ₹96,200 |
Tax is zero because taxable income of ₹11,03,400 after the ₹75,000 standard deduction is under the ₹12 lakh rebate threshold. Add a gratuity provision of 4.81% of basic to the CTC and in-hand drops by about ₹1,900 a month; move basic to 50% and PF rises, in-hand drops further but your retirement savings grow.
Why PF has two versions
Employers may calculate PF on the full basic salary or cap it at the statutory wage ceiling of ₹15,000 a month, which gives ₹1,800 each from employer and employee. Capping raises in-hand pay but cuts your retirement corpus roughly in half for a ₹40,000 basic. Ask which method the employer uses; both are legal above the ceiling.
Variable pay deserves scepticism
"CTC ₹15 lakh including 20% variable" means ₹12 lakh is fixed. Variable pay is paid annually or quarterly, is taxed when received, and depends on company and individual performance. Compare offers on fixed CTC first. Ask for the payout history of the last two years; a company that paid 60% of target consistently is telling you something.
Negotiating the structure, not just the number
- Higher basic means more PF and gratuity and a bigger HRA exemption, but lower in-hand. Good if you are saving for retirement and renting in a metro under the old regime.
- Lower basic, higher special allowance maximises in-hand. Good if you are in the new regime and want cash now.
- Employer NPS of up to 14% of basic is deductible even in the new regime, which makes it the one tax-efficient perk left for most people. Ask for it.
- Joining bonus is usually clawed back if you leave within a year, and is taxed in full.
Questions to ask HR before signing
- Is employer PF part of the CTC figure, and is it on full basic or the ₹15,000 ceiling?
- Is gratuity included in CTC?
- What is fixed and what is variable, and what percentage of variable was actually paid last year?
- Which allowances need bills to be tax-free, and does the company run a flexible benefits plan?
- Is there an employer NPS option?
Comparing a new offer with your current pay
Hikes are quoted on CTC, but the structures differ, so a 30% CTC hike can be a 20% in-hand hike if the new employer loads more into PF, gratuity and variable pay. Run both offers through the same calculator and compare monthly in-hand and annual fixed cash.
Use the CTC to in-hand calculator with your structure, compare two offers with the salary hike calculator, and see what gratuity is actually worth after five years in the gratuity calculator.
Sources
This guide is general information, not financial, tax or legal advice. Rules change; the review date above tells you when it was last checked. See our editorial policy.