CTC vs In-Hand Salary in 2026: How to Calculate Take-Home Pay (3 Worked Examples)

"Your CTC is ₹12 lakh" sounds like ₹1 lakh a month. Then the first salary arrives and it's ₹91,000. Nothing went wrong — CTC was never the amount you take home. It includes money the company spends on you that never reaches your bank account, and it's before the deductions that come out of your salary.

This guide explains exactly how CTC turns into in-hand salary in 2026, with three complete worked examples at different salary levels. It also covers what changed under the new labour codes — the "50% wages" rule that is reshaping salary structures — and what employers should get right when they design CTC.

Figures are as of 30 September 2026. PF, ESI, gratuity and tax rules change by notification, and Professional Tax varies by state. Treat the examples as illustrations and check the current rules for your case.

The short answer

In-hand salary = CTC − employer's contributions − employee's deductions, divided by 12.

• Employer's contributions (part of CTC, never paid to you monthly): employer PF, employer ESI (if applicable), gratuity provision, and sometimes insurance premiums.
• Employee's deductions (taken from your salary): employee PF, employee ESI (if applicable), Professional Tax, TDS, and sometimes VPF or loan recoveries.

For most salaried people, monthly in-hand is roughly 80–92% of monthly CTC, depending mainly on PF and tax.

The three layers of a salary

It helps to think of pay in three layers:

1. CTC (cost to company) — everything the employer spends on you in a year.
2. Gross salary — what's actually paid out as salary each month, before deductions: basic, HRA, allowances, and variable pay.
3. Net salary (in-hand) — gross salary minus deductions. This is what reaches your bank account.

CTC − employer's own contributions = gross. Gross − your deductions = in-hand.

What goes into gross salary

• Basic — the foundation. PF, gratuity and often HRA are calculated from it.
• Dearness allowance (DA) — common in government and some manufacturing jobs; treated like basic for PF.
• HRA — house rent allowance, partly tax-exempt in the old tax regime.
• Special / other allowances — the balancing figure that makes the structure add up.
• Variable pay and incentives — often part of CTC but paid only if earned. Many offer letters include the full variable amount in CTC; the in-hand you see monthly won't include it.

What the employer pays on top (inside CTC)

• Employer PF — 12% of PF wages, usually capped at the wage ceiling. From 17 September 2026 the ceiling is ₹25,000, so employer PF is up to ₹3,000 a month.
• Employer ESI — 3.25% of gross wages, only if gross is ₹21,000 a month or less.
• Gratuity provision — usually 4.81% of basic (15 days' wages for every year, spread monthly). It's paid only when you leave after qualifying service.
• Insurance — group health or term cover, if the company includes it in CTC.

What comes out of your salary

• Employee PF — 12% of PF wages (₹3,000 a month at the ₹25,000 ceiling).
• Employee ESI — 0.75% of gross, only if gross is within ₹21,000.
• Professional Tax — a state tax, typically up to ₹200 a month (₹2,500 a year), with state-specific slabs. Some states don't levy it.
• TDS — income tax, spread over the year. Zero for most people earning up to ₹12.75 lakh under the new regime.

The labour code "50% wages" rule

The labour codes came into force on 21 November 2025, and they changed how salary structures should be built. Under the new definition, "wages" means basic, DA and retaining allowance. Items like HRA, conveyance and other allowances are excluded — but if the excluded items add up to more than 50% of total remuneration, the excess is added back to wages.

Why it matters: PF, gratuity and some other benefits are calculated on "wages". Structures that kept basic at 30–40% of CTC to keep PF low now effectively have a higher wage base. In practice, many employers have moved to basic at about 50% of CTC. The result:

• Higher PF and gratuity — more retirement savings for the employee.
• Slightly lower in-hand salary for some employees, because employee PF rises too.
• Higher cost to company for the employer, unless the CTC is restructured.

The examples below use basic at 50% of CTC.

Worked example 1: CTC ₹12,00,000 (₹1,00,000 a month)

Structure (monthly):

Component	Amount
Basic (50% of CTC)	₹50,000
HRA (40% of basic)	₹20,000
Special allowance	₹24,595
Gross salary	₹94,595
Employer PF (12% of ₹25,000 ceiling)	₹3,000
Gratuity provision (4.81% of basic)	₹2,405
CTC	₹1,00,000

Deductions (monthly):

Deduction	Amount
Employee PF (12% of ₹25,000)	₹3,000
Professional Tax (varies by state)	₹200
TDS — new regime	₹0
ESI	Not applicable (gross above ₹21,000)

In-hand: ₹94,595 − ₹3,200 = ₹91,395 a month — about 91% of monthly CTC.

Why is TDS zero? Annual gross is about ₹11,35,000. After the ₹75,000 standard deduction, taxable income is about ₹10,60,000 — under the ₹12 lakh rebate limit in the new regime.

Worked example 2: CTC ₹6,00,000 (₹50,000 a month)

Component	Amount
Basic	₹25,000
HRA	₹10,000
Special allowance	₹10,797
Gross salary	₹45,797
Employer PF (12% of ₹25,000)	₹3,000
Gratuity provision	₹1,203
CTC	₹50,000

Deductions: employee PF ₹3,000, Professional Tax ₹200, TDS ₹0.

In-hand: ₹42,597 a month — about 85% of monthly CTC.

Notice that PF takes a bigger share at this level: the employee and employer each put in ₹3,000 on a ₹25,000 basic, which is 12% of total CTC between them.

Worked example 3: CTC ₹2,40,000 (₹20,000 a month) — with ESI

At lower salaries, ESI applies and changes the maths.

Component	Amount
Basic	₹10,000
HRA	₹4,000
Special allowance	₹3,742
Gross salary	₹17,742
Employer PF (12% of ₹10,000)	₹1,200
Gratuity provision	₹481
Employer ESI (3.25% of gross)	₹577
CTC	₹20,000

Deductions: employee PF ₹1,200, employee ESI (0.75% of gross) ₹134, Professional Tax ₹200 (varies by state), TDS ₹0.

In-hand: ₹16,208 a month — about 81% of monthly CTC.

The employee gets ESI medical cover for themselves and their family in return for the ₹134.

How to estimate in-hand quickly

A quick method that gets you within a few hundred rupees:

1. Monthly CTC = annual CTC ÷ 12.
2. Subtract employer PF (12% of basic, maximum ₹3,000) and gratuity (about 4.8% of basic). This gives gross.
3. If gross is ₹21,000 or less, also subtract employer ESI (3.25% of gross).
4. From gross, subtract employee PF (same as employer PF), employee ESI (0.75%, if applicable), and Professional Tax (about ₹200).
5. Subtract TDS: zero for most people up to ₹12.75 lakh a year in the new regime; above that, use a tax calculator.

Things that make in-hand lower than expected

• Variable pay counted in CTC — a ₹12 lakh CTC with ₹1.5 lakh variable is really ₹10.5 lakh fixed.
• Insurance premiums included in CTC — group health cover you never see as cash.
• Loss of pay — unpaid leave reduces gross for the month.
• Joining mid-month — your first salary is only for the days you were employed.
• VPF — voluntary PF, if you opted in, comes out of your salary.
• Old regime without declarations — if you chose the old regime but didn't submit proofs, TDS can be higher than expected.

Comparing two job offers

A higher CTC isn't always the better offer. When you compare two offers, put them side by side on these points:

1. Fixed vs variable. Take the variable part out of both CTCs and compare the fixed pay. Then ask how much variable was actually paid out last year.
2. Basic as a share of CTC. A higher basic means more PF and gratuity (good for savings) and slightly lower monthly in-hand.
3. PF on the ceiling or on full basic. Contributing on full basic can move thousands of rupees a month from in-hand into PF.
4. Insurance. Is health cover included in CTC or given on top? Does it cover parents?
5. Joining bonus and retention bonus. Usually one-time, often with a clawback if you leave early — don't count them as salary.
6. Estimated in-hand. Ask each company for the estimated monthly in-hand in writing. A good employer can give it to you from the offer letter.

Two offers with the same ₹12 lakh CTC can differ by ₹3,000–₹5,000 a month in take-home pay, purely because of structure.

For employers: designing CTC in 2026

1. Keep basic at or near 50% of total remuneration to stay aligned with the labour code wage definition, and check your PF and gratuity costs at that level.
2. Decide how you handle the PF ceiling — contributions on the ₹25,000 ceiling or on full basic. It changes both the employee's in-hand and your cost.
3. Show both numbers in the offer letter — CTC and estimated monthly in-hand — so there are no surprises at the first payslip.
4. Separate fixed and variable clearly.
5. Check ESI at the lower end — employees with gross up to ₹21,000 must be covered, and the contribution-period rule keeps them covered for six months even after a raise.
6. Explain the payslip — every component, every deduction, and employer contributions shown separately.

How PeopleVio turns CTC into in-hand

PeopleVio is built so the numbers on the offer letter, the payslip and the statutory returns all come from the same structure:

• Salary structure per employee: basic, HRA, allowances and custom earning or deduction components.
• Offer letters generated as PDFs with the salary breakup, sent to candidates to accept online.
• Payroll that follows attendance: loss of pay, mid-month joining and exits prorate salary automatically.
• PF, VPF and ESI in payroll with the EPFO and ESIC modules — including the ₹25,000 PF ceiling and the ESI contribution-period rule — and employer contributions shown on payslips for information.
• TDS under the old or new regime, with employee declarations and PF counted in 80C for old-regime employees.
• PDF payslips that show gross, every deduction and net pay, emailed to employees.

What PeopleVio doesn't do

• Professional Tax isn't calculated automatically. You can add it as a fixed deduction in the salary structure, but state-wise slabs aren't built in.
• Gratuity isn't calculated or paid out by the software; include the provision in your CTC design and pay gratuity through your normal process.
• There's no public CTC calculator for candidates on the website — the breakup comes from the offer letter.

Frequently asked questions

How much is in-hand salary for ₹12 lakh CTC? About ₹91,000 a month with basic at 50% of CTC, PF on the ₹25,000 ceiling and the new tax regime — see worked example 1. It varies with your salary structure, state and tax regime.

Is PF part of CTC? Yes. The employer's PF contribution is part of CTC, and the employee's PF is deducted from gross salary. So PF appears in CTC twice in effect: once as the employer's cost, once as your deduction.

What is the difference between gross salary and CTC? CTC includes the employer's contributions (PF, ESI, gratuity, insurance). Gross salary is what's paid as salary before your deductions.

Did the new labour codes reduce in-hand salary? For some employees, yes. The labour codes require wages (basic + DA) to be at least 50% of total pay for calculating PF and gratuity. Where basic was low, PF rises — increasing savings but reducing monthly in-hand.

Is gratuity paid every month? No. The gratuity amount in CTC is a provision. It's paid when you leave after the qualifying period (generally five years; one year for fixed-term employees under the labour codes).

How much Professional Tax is deducted? It depends on the state — up to ₹2,500 a year, usually ₹200 a month. Some states don't levy it.

Why is my first salary lower than expected? Usually because you joined mid-month, so salary is paid only for the days you worked, or because of variable pay counted in CTC.

The bottom line

CTC is what you cost the company; in-hand is what you take home. The gap is employer PF, gratuity and sometimes ESI and insurance on one side, and your PF, ESI, Professional Tax and TDS on the other. Under the labour codes, with basic at about 50% and PF on the ₹25,000 ceiling, most employees take home 80–92% of their monthly CTC.

For employers, the best protection against "why is my salary less?" conversations is a clear offer letter and a payslip that shows every number. See PeopleVio's pricing or talk to us — offer letters, payroll, PF, ESI and TDS all work from one salary structure.

Related reading: Old vs new tax regime for FY 2026-27 · ESIC wage ceiling 2026 · Offer letter software for small business

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