"₹12 lakh CTC" sounds like ₹1 lakh a month. It almost never is. Cost to Company is what you cost your employer, not what you receive. Several pieces come off before your salary reaches your bank account. Here's where every rupee goes, with real numbers, and what to ask before you sign an offer.
The three layers of salary
- CTC (cost to company): everything the employer spends on you in a year, including contributions made on your behalf and pay that depends on performance.
- Gross salary: CTC minus the employer's own contributions (PF, gratuity, insurance) and any variable pay not yet earned. This is what your payslip shows as total earnings.
- In-hand (net) salary: gross minus your PF contribution, professional tax and income tax. This is what's credited to your account.
What's inside CTC
| Component | What it is | In your monthly pay? |
|---|---|---|
| Basic salary | The core of your pay. PF, gratuity and HRA are all calculated from it. | Yes |
| HRA | House rent allowance, often 40–50% of basic. Partly tax-free under the old regime if you pay rent. | Yes |
| Special / other allowances | The balancing figure that fills the rest of fixed pay. | Yes |
| Employer's PF | 12% of basic (or of the ₹25,000 wage ceiling if capped), paid into your PF account. | No, goes to PF |
| Gratuity provision | About 4.81% of basic, set aside but paid only when you leave after qualifying service. | No |
| Insurance premiums | Group health or life cover that some employers include in CTC. | No |
| Variable pay / bonus | Performance-linked pay, usually paid yearly or quarterly, and often not at 100%. | Only when paid |
| Joining or retention bonus | One-time amounts, often with a clawback if you leave within a year. | Once |
Some offers also count ESOPs or stock grants inside CTC. Those vest over years and depend on the company's value, so treat them separately from your salary.
What comes off your gross salary
- Your PF contribution: 12% of basic, matching the employer's. It's your savings, not a cost, but it does reduce your monthly take-home. Many employers cap it at 12% of the PF wage ceiling, which rose from ₹15,000 to ₹25,000 on 17 September 2026 (so ₹3,000 a month); others charge it on your full basic.
- Professional tax: a state tax of up to ₹2,500 a year, usually ₹200 a month (₹300 in one month) in states that levy it, such as Karnataka and Maharashtra. Delhi doesn't charge it.
- Income tax (TDS): your employer estimates your tax for the year and deducts it monthly. Under the new regime, a salary up to ₹12.75 lakh pays no income tax.
- ESIC: 0.75% of pay, only if your gross is ₹21,000 a month or less.
How the 2025 labour codes change your salary structure
The four labour codes took effect on 21 November 2025. The Code on Wages sets one definition of "wages" for PF, gratuity and other benefits: if allowances are more than half of your total pay, the excess counts as wages anyway. In practice employers are moving basic pay (plus DA) up to at least 50% of pay.
A higher basic means:
- More PF from you and your employer, if PF isn't capped at the ₹25,000 ceiling. More retirement savings, slightly less take-home.
- Bigger gratuity when you leave, because it's calculated on basic + DA.
- A larger HRA base under the old regime, since HRA limits use basic.
Your CTC doesn't change; it's the mix inside it that shifts. The labour codes also make fixed-term employees eligible for gratuity after one year. See the EPF and gratuity guide.
Worked example: one ₹12 lakh CTC, three take-homes
Here's the same ₹12 lakh CTC structured three ways. All three assume the new tax regime, professional tax of ₹2,400 a year (a simplifying assumption; some states charge ₹2,500), and gratuity provision of 4.81% of basic built into CTC.
| Per year | Basic 40%, full PF | Basic 50%, full PF | Basic 40%, PF capped |
|---|---|---|---|
| Basic | ₹4,80,000 | ₹6,00,000 | ₹4,80,000 |
| Employer PF (inside CTC) | ₹57,600 | ₹72,000 | ₹36,000 |
| Gratuity provision (inside CTC) | ₹23,088 | ₹28,860 | ₹23,088 |
| Gross salary | ₹11,19,312 | ₹10,99,140 | ₹11,40,912 |
| Your PF (deducted) | ₹57,600 | ₹72,000 | ₹36,000 |
| Professional tax | ₹2,400 | ₹2,400 | ₹2,400 |
| Income tax (new regime) | ₹0 | ₹0 | ₹0 |
| In-hand per month | ₹88,276 | ₹85,395 | ₹91,876 |
Income tax is zero in all three because taxable salary stays under ₹12 lakh after the ₹75,000 standard deduction. The difference comes entirely from PF and gratuity.
What the 50% structure really costs you
Moving from 40% to 50% basic cuts in-hand pay by ₹2,881 a month. But it isn't lost: you get ₹28,800 more a year in your PF account (your share plus your employer's), earning 8.25% interest, and ₹5,772 more a year of gratuity. The PF-capped structure pays the most each month but saves the least for later.
Under the old regime the numbers change: you lose the ₹12 lakh rebate but can claim HRA, 80C (your own PF counts towards it) and other deductions. Compare both in the income tax calculator.
What to ask before you accept an offer
Two offers with the same CTC can differ by thousands a month. Ask HR for these in writing:
- The full salary breakup, component by component, not just the CTC figure.
- Fixed vs variable. If 15% is "performance bonus", plan your budget on the fixed part only.
- PF: full basic or capped at the ₹25,000 ceiling? This alone can swing take-home by ₹3,000 a month or more.
- Is gratuity inside the CTC? You only receive it after five years (one year for fixed-term staff).
- Joining bonus terms. Most have a clawback if you leave within 12 months.
- Insurance and perks counted in CTC. Group health cover is useful, but it isn't cash.
- Notice period and whether it can be bought out.
Frequently asked questions
Why is my in-hand salary so much less than CTC divided by 12?
CTC includes money you never get monthly: the employer’s PF contribution, gratuity provision, insurance premiums and variable pay. Then your own PF, professional tax and income tax are deducted from gross salary. A gap of 15–25% between CTC/12 and take-home is normal.
Is the employer’s PF contribution part of my salary?
It is part of your CTC and it is your money, but it goes into your EPF account instead of your bank account. You can withdraw it under EPF rules, and it earns interest (8.25% for FY 2025-26).
Will the 50% wage rule under the labour codes cut my take-home?
It can, if your basic was low and your PF is calculated on full basic. More of your CTC becomes basic, so PF and gratuity rise and monthly cash falls slightly. Your total CTC stays the same, and the extra goes into savings you keep.
Can I opt out of PF to get more in hand?
Only in limited cases. You can opt out only if your PF wages are above the wage ceiling (₹25,000 a month since 17 September 2026) when you join and you have never been an EPF member before. If you have ever had a UAN with contributions, you cannot opt out.
What is professional tax?
A state tax on employment, deducted by your employer. It is up to ₹2,500 a year and varies by state; some states such as Delhi and Haryana do not levy it.
When do I get the gratuity that is shown in my CTC?
When you leave after at least five years of continuous service (one year for fixed-term employees under the labour codes), or earlier on death or disablement. If you leave before that, the gratuity in your CTC is never paid.
Is variable pay guaranteed?
Usually not. It depends on your and the company’s performance, and is often paid quarterly or yearly. Check the offer letter for how it is calculated and whether you must be on the payroll on the payout date.