Discussion of salary may seem to be easy until one mentions such words as CTC and in-hand salary. A lot of employment opportunities promise to be appealing, but the amount of salary paid at the end of the month seems to be less than anticipated. This loophole confuses, particularly when negotiating or when changing roles.
By knowing the structure of salary, you will be able to read offers confidently. Being aware of what the total compensation and take-home pay will be will enable the arrangement of expenses, savings, and taxes. This transparency is important to both new employees and seasoned workers who may be analysing a novel compensation policy.
Key Takeaways
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CTC reflects the total cost an employer bears, while in-hand salary is the actual amount credited to your bank account after deductions.
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Deductions like tax, provident fund, and professional tax explain why in-hand pay is lower than the stated CTC.
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Employees with the same CTC can receive different in-hand salaries due to tax choices, benefits, and voluntary savings.
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Understanding the CTC structure helps in realistic budgeting, clearer negotiations, and better financial planning.
What Is CTC in Salary?
CTC (Cost-To-Company) refers to the total cost incurred by an employer for hiring an employee. It includes all the expenses associated with employing an officer, including the salary, allowances, perks and savings contributions. The CTC figure provides a comprehensive view of the employer's investment in an employee.
Components of CTC
The components included in CTC can be classified into three categories:
1. Direct Benefits
Direct benefits denote the total monetary benefit that the employee receives annually. This includes basic salary and different allowances such as dearness allowance (DA), house rent allowance (HRA), medical allowance, leave travel allowance, vehicle allowance, etc.
2. Indirect Benefits
The total amount paid by the employee on behalf of the employee,r such as subsidised meals, company-leased accommodation, life insurance and medical insurance premiums, etc.
3. Saving Contributions
The saving schemes include the contribution amount of the employer towards the saving schemes that an employee is entitled to. Some of these saving schemes are Gratuity, Employees’ Provident Fund (EPF), and superannuation benefits.
What Is the Gross Salary?
The salary that an employee receives before making any mandatory or voluntary deduction is called the gross salary. Under the 2026 Labour Codes, Gross Salary must be structured such that "Wages" (Basic + DA) constitute at least 50% of the total remuneration. This prevents companies from keeping basic pay artificially low to reduce provident fund and gratuity obligations.
This amount includes the basic salary, bonus amount, and allowances and is the amount before deduction of tax. This is the amount that is generally stated on the employment contract. It’s important to note that the 2026 Labour Codes have passed but not yet implemented.
Gross Salary = Basic Salary + Allowances (Before Tax Deductions) + Bonuses (where applicable)
What Is In-Hand Salary?
The in-hand salary is the amount that an employee takes home. It is also known as the net salary or take-home pay. As CTC depicts the total cost to an employer, in-hand salary shows the actual amount that an employee can use at their disposal for personal expenses.
The in-hand salary can be calculated by deducting the liable tax amount from the gross salary. It is calculated by deducting income tax (TDS), employee PF contributions (typically 12% of Basic), and professional tax from the gross salary. Because 2026 laws mandate a higher Basic Salary, many employees see a lower monthly in-hand amount but significantly higher retirement savings.
In-Hand Salary = Gross Salary - Tax Deductions
CTC vs In-hand Salary
|
Elements |
CTC (Cost To Company) |
In-Hand Salary |
|
Meaning |
Total amount invested by the employer for the services of an employee. |
The actual disposable income credited to the employee’s bank account. |
|
Components |
Includes basic salary, allowances, employer's saving contributions, and non-cash perks (insurance, food coupons, etc.). |
Includes basic salary and allowances minus income tax (TDS), employee PF contributions (12% of basic), and professional tax. |
|
Transperancy |
Often stated as higher to attract candidates. In 2026, CTC figures now include higher statutory contributions due to mandatory wage rules. |
It provides a clearer picture of the employee’s monthly liquidity. |
|
Relevance |
Generally discussed during job offers and used to calculate retirement benefits like Gratuity and PF. |
The focus of the employee is on immediate monthly budgeting and financial planning. |
How to Calculate In-hand Salary from Gross Salary
CTC comprises all the expenses the employer incurs for you within a year. This can include basic remuneration, allowances, bonuses, employer provident fund, insurance and other benefits. Not everything in this is deposited in your wallet.
That’s why to go from your CTC to in-hand salary the first step involves the determination of the gross salary. This typically consists of the basic salary, house rent allowance, special allowance and any form of bonuses paid in the year. Gross salary does not consider benefits to the employer, like gratuity benefits to the employer's provident fund.
Deductions are made on gross salary. These are contributions of the employees to the provident fund, professional tax, where applicable and income tax. Income tax varies according to the tax regime that you have chosen, exemptions that you have declared, and deductions, including provident fund, insurance premiums or eligible savings. These inferences decrease gross salary to come up with in-hand salary.
As an illustration, two workers with equal CTC can have different monthly credits due to the different tax slabs, benefit options or voluntary deductions. A person can choose to make increased contributions to a provident fund, and another can get flexible benefits of a different sort.
To calculate CTC to hand, begin with the annual gross salary, and deduct the required deductions, after which the balance is divided by 12. Annual bonuses can only increase CTC but not the monthly in-hand pay on an even basis. Cash credit may not be provided by insurance premiums or meal benefits.
These differences can be traced easily by reading salary slips as well as offer letters. In-hand salary is cash flow, whereas CTC is the total employment cost. Both of them matter, however, in the case of budgeting and planning, in-hand pay will provide the real picture.
How To Calculate CTC From Basic Salary?
Let’s take an example and understand how to derive the CTC amount from the in-hand salary.
|
Components |
Amount (₹) |
Deductions |
Amount (₹) |
|
Basic Salary |
1250 |
Provident Fund |
150 |
|
HRA |
150 |
Professional Tax |
70 |
|
Special Allowance |
100 |
|
|
|
Gross Earnings (A) |
1,500 |
Total Deductions (B) |
220 |
|
Net Pay (A-B) |
1,280 |
|
|
Annual Figures
Net Pay = ₹1,280 * 12 = ₹15,360
Hence, the annual in-hand salary is ₹15,360
To get the CTC figure, we add the expenses borne by the employer on behalf of the employee. These expenses are subject to the employer as well as the job contract.
|
Expenses |
Amount (₹) |
|
Medical Insurance |
650 |
|
Provident Fund (10% of basic salary) |
120 |
|
Gratuity Provision (approx. 4.81% of basic) |
48 |
|
Total Benefits |
818 |
Thus, CTC = In-Hand Salary + Total Benefits
CTC = 16,800 (Annual Gross) + 9,816 (Annual Benefits) = ₹26,616
Total CTC = ₹26,616
Note: This is only to illustrate the calculation of CTC. The structure may be subject to the company and its policies.
How To Calculate Your Taxable Income?
The following steps can be taken to calculate taxable income:
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Calculate the gross salary by adding allowances such as DA, HRA, travel allowance, and special allowances to your basic salary. This gross amount includes all bonuses and commissions.
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Account for Exemptions. Deduct the amount of professional tax**, a standard deduction,** and any applicable exemptions from the gross salary.
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Old Regime: You can claim HRA exemptions and a standard deduction of ₹50,000.
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New Regime (Default): You cannot claim HRA exemptions, but you can claim a higher standard deduction of ₹75,000.
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Determine Gross Total Income. Note that you should add income from other sources (e.g., interest income, rental income from a let-out property) to the Step 2 amount to get your Gross Total Income.
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Apply Deductions. Subtract the applicable deductions under sections 80C, 80D, and Chapter VIA of the Income Tax Act.
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Old Regime: A wide range of deductions (80C, 80D, 80E, etc.) is available.
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New Regime (Default): Most Chapter VIA deductions are not allowed, except for deductions like the employer's contribution to NPS (Section 80CCD(2)).
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This is the taxable income. Apply the income tax rate from the income slab for the taxable income amount under your chosen regime, then add a 4% Health and Education Cess.
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To arrive quickly at an accurate taxable income, online tax calculators are available to assist you in comparing both the Old and New tax regimes to see which is more beneficial for your specific situation. Since, you can switch between both regimes annually before filing the return, calculating the tax in advance can help you choose the best option.
Final Words
Understanding the difference between CTC and In-Hand Salary can help you navigate the field of job searching because it helps you negotiate a better salary, budget efficiently, and understand your tax liability. Moreover, knowing your disposable income can help you make better investment decisions, such as how much to invest, how to save on taxes through investing, etc.
