CTC to in-hand salary: how to read a salary breakup

"My CTC is 8 lakh but I only get 55,000 a month" is the most common salary conversation in an Indian company, and it is usually HR who has to explain it. The gap is not a trick. It is the sum of things the employer pays that never reach the bank account, plus the things deducted on the way. This guide walks through the layers once, with worked examples, so the explanation can be reused.

The four numbers

Number	What it is	Who sees it
CTC	Everything the company spends on the employee in a year: fixed pay, variable pay, employer PF and ESI, gratuity provision, insurance premium, sometimes food and transport	Offer letter
Gross salary	Fixed monthly earnings before any deduction: basic, HRA, special allowance, other allowances	Payslip, top half
Net salary	Gross minus employee-side deductions: employee PF, ESI, professional tax, TDS, any recovery	Payslip, bottom line
In-hand	Net salary as actually credited, which is the same as net unless reimbursements or arrears are paid separately	Bank statement

The confusion comes from comparing CTC with in-hand. One is an annual employer cost, the other is a monthly credit after deductions.

What sits between CTC and gross

Start with annual CTC and remove the parts that are not monthly earnings:

Employer PF contribution, 12 percent of basic, capped at the ₹25,000 wage ceiling unless the company contributes on full basic. This is part of CTC and goes to the employee's PF account, not their bank.
Employer ESI contribution, 3.25 percent of gross, only for employees earning gross up to ₹21,000 a month.
Gratuity provision, usually shown as 4.81 percent of basic. It is a future liability, payable after five years of service, and many companies include it in CTC. Whether that is fair is a separate argument; it is common.
Insurance premiums for group health or accident cover, if the company counts them in CTC.
Variable pay or bonus, which is paid quarterly or annually on performance, not monthly.

What remains is the annual fixed gross. Divide by twelve for the monthly gross on the payslip. If a candidate's offer says CTC but the fixed gross is not stated, ask for it; the salary structure should make the split explicit.

What comes off gross

Deductions on the payslip, in the usual order:

Employee PF, 12 percent of basic, on the same ceiling logic as the employer side.
ESI, 0.75 percent of gross, only below the ₹21,000 threshold.
Professional tax, a state levy. Most levying states charge ₹200 a month at the top slab, with Maharashtra charging ₹300 in February to reach the ₹2,500 annual cap. Some states charge nothing.
TDS, income tax deducted at source on the projected annual taxable income, spread across the year's payslips.
Other recoveries: salary advance, notice period shortfall, canteen, loan EMIs.

The result is net salary.

TDS in the new regime

For FY 2026-27 the new tax regime is the default. After the ₹75,000 standard deduction, slab rates run nil up to ₹4 lakh, 5 percent to ₹8 lakh, 10 percent to ₹12 lakh, 15 percent to ₹16 lakh, 20 percent to ₹20 lakh, 25 percent to ₹24 lakh and 30 percent above. The Section 87A rebate makes tax nil where taxable income is up to ₹12 lakh, so a salaried employee with gross up to about ₹12.75 lakh and no other income pays no tax under the new regime. Above that, the rebate falls away and tax applies on the whole slab structure, with a small marginal relief just past the threshold. Employees can still ask for the old regime for TDS purposes; our guide to the two regimes covers what HR must do with that choice.

Three worked examples

Assumptions: basic is 40 percent of fixed gross, PF on actual basic up to the ceiling, Karnataka professional tax of ₹200 a month, new regime, no other income, no variable pay. Figures are rounded to the nearest hundred.

	₹4 lakh CTC	₹8 lakh CTC	₹15 lakh CTC
Employer PF in CTC (annual)	18,000	36,000	36,000
Gratuity provision in CTC (annual)	7,200	14,400	27,600
Fixed gross (annual)	3,74,800	7,49,600	14,36,400
Monthly gross	31,200	62,500	1,19,700
Basic (monthly)	12,500	25,000	47,900
Employee PF	1,500	3,000	3,000
ESI	0	0	0
Professional tax	200	200	200
TDS (monthly, including cess)	0	0	7,300
Net in-hand (monthly)	29,500	59,300	1,09,200
In-hand as share of CTC	89%	89%	87%

Notes on the table. At ₹4 lakh the gross is above the ESI threshold, so no ESI; at a lower CTC it would appear. At ₹8 lakh the basic lands almost exactly on the ₹25,000 PF ceiling, which is why employee PF stops at ₹3,000 and stays there in the ₹15 lakh column. At ₹15 lakh, taxable income after the standard deduction is about ₹13.6 lakh, above the rebate limit, so TDS appears; under the old regime with HRA and 80C the figure could be lower, which is the point of the regime choice.

Explaining it to employees

Three habits reduce the number of these conversations. Show the CTC breakup as an annexure to the offer, with fixed gross and expected monthly net stated as numbers. Make the payslip readable, with employer contributions visible as a memo section so people see where the rest of the CTC went; a good payroll module does this by default. And publish a short internal note on the regime choice before the April declaration window, because most TDS surprises are regime surprises.

When someone asks why a 10 percent increment produced a smaller change in their bank credit, the answer is almost always one of: they crossed the rebate threshold, the PF ceiling no longer caps their contribution after the September change, or part of the increment went into variable pay. All three are explainable in a sentence if the breakup is in front of both of you.

Sources

This article describes general provisions and common practice, not tax or legal advice. Slab rates, rebates, ceilings and state professional tax differ by year and state; confirm the figures for your establishment with a professional.