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From CTC to Take-Home: How a Salary Offer Turns Into Cash
A cost-to-company figure is what the employer spends on you, not what you receive. Some of it is paid to someone else, some is paid years later, and tax and provident fund come off what is left.
What CTC includes
An offer letter usually splits CTC into fixed pay and some mix of the parts below. Only some of it arrives as monthly salary.
- Basic salary, usually 40% to 50% of CTC. Several other figures are calculated from it.
- House rent allowance, often set as a share of basic.
- A special or flexible allowance that makes up the rest of the fixed pay.
- The employer's provident fund contribution, usually 12% of basic.
- Gratuity, often shown at about 4.8% of basic, which is only paid if you stay at least five years.
- Variable pay or a performance bonus, paid later and not always in full.
- Group insurance premiums and other benefits paid on your behalf.
What never reaches your account
The employer's PF contribution goes into your provident fund, with part of it diverted to the pension scheme. Gratuity is a promise to pay after long service, so an offer that counts it inside CTC includes money you will not see if you move on sooner. Insurance premiums go to the insurer. Variable pay depends on targets and timing.
Take those out and what remains is gross salary, the figure your payslip starts from each month.
What comes off gross salary
For most employees, three deductions stand between gross salary and take-home:
- Your own PF contribution, usually 12% of basic. Some employers calculate PF on a capped wage instead of full basic, which lowers both contributions and raises take-home.
- Professional tax, which many states charge on salary. It is small, the Constitution caps it at ₹2,500 a year, and some states do not charge it at all.
- Income tax, which your employer deducts every month as TDS, based on the regime you declare and the investments you report.
A worked example
Take a CTC of ₹12 lakh with basic set at 40%, which is ₹4,80,000 a year. The employer's PF at 12% of basic is ₹57,600, and gratuity at 4.81% of basic is ₹23,088. That is ₹80,688 of the CTC that is not paid as salary, leaving gross salary of ₹11,19,312.
Your own PF then takes ₹57,600 and professional tax ₹2,400. Under the new regime for FY 2026-27, taxable income after the ₹75,000 standard deduction falls inside the rebate limit, so the income tax is nothing. Take-home is ₹10,59,312 a year, or ₹88,276 a month.
That is about 88% of CTC. Almost all of the gap is retirement saving, which is still your money, only not money you can spend this month.
At a higher salary, tax takes over
On a ₹20 lakh CTC with the same structure, gross salary is ₹18,65,520 and your PF is ₹96,000. Under the new regime the income tax is ₹1,64,428 and take-home is ₹1,33,558 a month.
Under the old regime with ₹2.5 lakh of deductions, the tax on the same salary is ₹2,92,693 and take-home falls to ₹1,22,869 a month. Deductions only help if they cut more tax than the new regime's lower rates do, and at this income they fall short. The regime walkthrough shows where that changes.
Why take-home moves month to month
The monthly figure is rarely the same all year. TDS is recalculated as the year goes on, so it can rise after a salary revision or fall once you submit investment proofs. Some states charge a different professional tax in one month. Bonuses, arrears and leave encashment are paid in a particular month, and so is the tax on them.
Comparing two offers
- Separate fixed pay from variable pay, and compare the fixed parts first.
- Check whether gratuity and insurance sit inside each CTC, and take them out of both.
- Compare the share of basic, since it drives PF and gratuity, and so both your retirement saving and your take-home.
- Work out monthly take-home for each offer under the regime you expect to choose.
The salary calculator does this from a CTC figure, with a monthly and yearly breakup of every component. The EPF calculator shows what the provident fund part grows to if you leave it invested.