How CTC works in India — the complete breakdown

Your offer letter says ₹15 lakh. Your bank statement, once the dust settles, shows about ₹1,00,300 a month. That’s ₹12,03,600 a year. Almost ₹3 lakh has gone somewhere.

Where, exactly?

Your HR will not explain it. Your accountant probably won’t either. They will both assume you already know. You probably don’t — almost no one does, because nothing on the offer letter shows you the missing pieces.

What follows is the math, line by line. Every component of your CTC, what gets taxed, what gets deducted, and why the number that lands in your bank each month is so much smaller than the headline.

The CTC anatomy

A standard Indian CTC is built around one number: your basic salary. Almost everything else flows from it.

By default, basic is half of your CTC. For ₹15 lakh, that’s ₹7.5 lakh a year — ₹62,500 a month. Some companies push basic to 40% to lower their statutory burden. Some push it to 60% to maximise the employee’s PF and gratuity. We’ll come back to why this lever matters more than most people realise.

Your HRA is calculated as a percentage of basic. 50% if you live in a metro. 40% if you don’t. So for our ₹15L example in Mumbai, HRA is ₹3.75 lakh. In Bangalore — which the Income Tax Act does not count as a metro under Rule 2A — it would be ₹3 lakh. (Hyderabad, Pune, Gurgaon, Noida — all “anywhere else” for HRA. The metro list under Rule 2A is exactly Delhi, Mumbai, Chennai, Kolkata. Every techie discovers this once, looks at their rent receipts, and quietly recalculates.)

Then there’s employer PF. 12% of basic, paid by your employer into your EPF account — ₹90,000 a year. This is part of your CTC, listed on the offer letter. It is also untouchable: it accumulates in a retirement fund managed by EPFO, locked until 58 unless you withdraw under specific circumstances.

Then there’s gratuity. 4.81% of basic, set aside monthly — ₹36,075 a year for our example. Also part of CTC. Also untouchable, until you’ve worked five continuous years at the same employer.

What’s left, once basic and HRA and employer PF and gratuity are accounted for, is your special allowance. For ₹15L CTC at 50% basic in Mumbai, the residual is ₹2,48,925. This is the only fully flexible component. It is also fully taxable, with no exemption or special treatment.

Add it all back up — ₹7,50,000 + ₹3,75,000 + ₹2,48,925 + ₹90,000 + ₹36,075 — and you arrive at ₹15 lakh. Your CTC, line by line.

But two of those line items, ₹1,26,075 worth, will never reach your bank account. Not this year. Not until you change jobs after five years or hit retirement.

What never reaches your bank

Five things sit between your ₹15 lakh CTC and the ₹1,00,300 that lands in your bank each month.

Two of them are employer-side. Your employer’s PF contribution — ₹90,000 a year — was always destined for your EPF account, not your salary account. Your gratuity reserve — ₹36,075 a year — is accrued on your behalf but only paid out after five years of continuous service. Together: ₹1,26,075 that exists on the offer letter and nowhere else in your monthly life.

Three more are taken from your salary itself. Your own PF contribution — also 12% of basic, also ₹90,000 a year on this CTC — goes into the same EPF account your employer is funding. (You’ll get it back, with interest, decades from now. You will not get it back this year.) Then ₹2,500 in Professional Tax, because you work in Maharashtra and the state collects it. Then income tax.

Income tax under the new regime, for ₹15 lakh CTC with no extra deductions, is ₹77,833 a year. Roughly ₹6,486 a month. We’ll get to why the new regime makes sense for most of these scenarios in a separate article on old vs new.

Add them all up: ₹90,000 + ₹36,075 + ₹90,000 + ₹2,500 + ₹77,833 = ₹2,96,408.

That’s the gap. ₹15,00,000 minus ₹2,96,408 leaves you with ₹12,03,592 a year. Divide by 12 and you arrive at ₹1,00,299 a month — within rounding of the figure you actually see on your bank statement.

The math is not hidden. It just lives in five different places that nobody assembles for you.

How basic % changes everything

Most candidates accept whatever basic-to-CTC ratio the employer hands them. Some companies default to 40%. Some to 50%. A few to 60%. The ratio is rarely on the offer letter as a discussion item.

It should be.

Run the same ₹15 lakh CTC through the calculator with three basic percentages, holding everything else constant — Mumbai, new regime, full-basic PF, gratuity included.

At 40% basic: your basic is ₹6 lakh. Employer + employee PF together: ₹1,44,000 a year. Monthly take-home: ₹1,03,573.

At 50% basic: your basic is ₹7.5 lakh. Combined PF: ₹1,80,000. Monthly take-home: ₹1,00,299.

At 60% basic: your basic is ₹9 lakh. Combined PF: ₹2,16,000. Monthly take-home: ₹97,026. Special allowance: ₹0 — the entire CTC is consumed by basic, HRA, PF and gratuity at this point.

The gap between 40% basic and 60% basic is ₹6,547 a month in your hand. It is also ₹72,000 a year going into your retirement account instead of your bank. Same CTC. Different distribution.

There is no universally right answer. A higher basic raises your HRA ceiling, your PF accumulation, and — in the old regime — your tax-saving headroom. A lower basic gives you more in your hand each month and more flexibility on the special allowance bucket. (Most salaried Indians underweight the long-term PF compounding because it doesn’t feel like income. It is.)

The number to remember: under the new Labour Codes, basic is required to be at least 50% of CTC. Many companies still aren’t compliant. We cover the implications in a separate article on the new wage code.

What HR won’t tell you

Three things worth knowing before you accept an offer.

First: basic percentage is negotiable. If your offer comes in with basic at 35% or 40%, ask for 50%. Most companies will adjust without renegotiating the headline CTC — they just rebalance the components. Few candidates ever ask, which is why the gap persists.

Second: the special allowance is the only honest number. Everything else in your CTC is either statutorily mandated (PF, gratuity) or capped by formula (HRA depends on basic). Special allowance is the residual. If a recruiter is “throwing in” benefits — meal cards, fuel reimbursements, learning stipends — they are coming out of the special allowance pool, not added to your CTC. Decide whether you actually want them or whether you’d rather have the cash.

Third: sign-on and retention bonuses are not part of your monthly salary. They are usually shown separately on the offer letter, but some companies fold them into a “first-year CTC” figure that’s misleading. A ₹16L CTC with a ₹2L sign-on amortised across year one is a ₹14L CTC plus a ₹2L one-time payment. Treat them differently when comparing offers.

None of this is hidden. It just isn’t volunteered.

So what

Most salary calculators show you a number. The good ones show you the math. The best ones show you which numbers matter, which ones to ignore, and which ones to push back on before you sign anything.

Your CTC is the number you negotiated. Your gross taxable salary is the number the tax department sees. Your take-home is the number your landlord cares about. Your retirement contribution is the number your future self cares about. They are all the same money, distributed differently.

The lever that controls all of them is your basic salary. It is also the one number no one ever asks you to look at.

For a full breakdown of your specific CTC — components, deductions, regime comparison, take-home — the salary calculator does this math live. Adjust the basic percentage, switch your city, add a rent figure, and watch every downstream number recompute.

Frequently asked questions

Is gratuity part of CTC?

Almost always, yes. Companies include the 4.81% gratuity reserve in their stated CTC, even though you can’t access it until you’ve completed five years of continuous service with the same employer. If you change jobs in four years, your gratuity reserve is forfeited. Treat it as long-term, not as part of your earning power.

Why is my in-hand salary so much less than my CTC?

Three reasons, in order of magnitude. Employer-side components — employer PF and gratuity — are in your CTC but not in your hand. Statutory deductions — employee PF, Professional Tax — come out of your salary before it lands. Income tax is the third and usually largest deduction. The exact split depends on your CTC, your city, and your regime. For ₹15 lakh CTC under the new regime, about ₹3 lakh of your CTC doesn’t reach your bank in any given year.

Can I negotiate my basic percentage at offer stage?

Yes. The headline CTC stays the same; only the component split changes. Most HR teams will accommodate a request to raise basic to 50% if asked clearly during the offer-letter stage. It’s harder to renegotiate once you’ve joined. The lever is most useful for higher CTCs (over ₹15L) where the tax and PF math compounds meaningfully.

What’s the difference between gross salary and net salary?

Gross salary is your basic + HRA + special allowance — the cash portion of your CTC that’s notionally yours each month, before any deductions. Net salary (also called take-home or in-hand) is what actually hits your bank after employee PF, Professional Tax, and income tax come out. For our ₹15L example, gross taxable salary is ₹13,73,925 a year and net take-home is ₹12,03,592.

Is employer PF contribution taxable?

No, not while it’s being contributed. Under Section 17(2)(vii) of the Income Tax Act, employer contributions to a recognised provident fund are exempt up to 12% of basic + DA. The contribution itself is invisible on your tax return. Interest earned on contributions exceeding ₹2.5 lakh a year became partially taxable from FY 2021-22, but for nearly all salaried employees that ceiling is never reached.

Why is my HRA exemption lower than I expected?

Because HRA exemption is the minimum of three numbers, not the largest. Even if your employer-paid HRA is ₹3.75 lakh a year, your exemption is capped by your actual rent and by 10% of basic. We walk through the full math, with examples, in the HRA exemption article.

Does my CTC include taxes my employer pays on me?

No. CTC is the total cost the employer incurs for you — salary, retirement contributions, gratuity reserve, insurance premiums if any. It does not include corporate income tax, GST on services, or any other tax the employer pays out of its own pocket on behalf of operations. Your CTC and the company’s cost-of-employment-tax are separate numbers.