From CTC to take-home pay, line by line
Why take-home pay is well below CTC divided by twelve: employer PF and gratuity, your own PF, professional tax and income tax, worked through for real salaries.
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In short
- A ₹12 lakh CTC with basic at half of it takes home about ₹85,396 a month under the new regime — with no income tax at all.
- Employer PF and gratuity are inside the CTC but never reach the monthly salary, and your own PF comes off on top of that.
- For FY 2026-27, the new regime's ₹75,000 standard deduction and section 87A rebate make a salary of up to ₹12.75 lakh free of income tax.
- Restricting PF to 12% of the ₹15,000 wage ceiling raises take-home pay now and lowers retirement savings by the same amount.
- A bonus is taxed at your highest slab, so it arrives smaller than its share of the CTC suggests.
Cost to company is exactly what it says: what the employer spends on employing you in a year. It is not what the employee receives, and the gap between CTC divided by twelve and the amount that lands in the bank account each month surprises almost everyone the first time they see an offer letter turn into a payslip.
What a CTC contains
A typical CTC is built from a few layers. Basic pay and dearness allowance are the core, and several other figures are calculated from them. Allowances — house rent allowance, special allowance and the rest — make up most of the remainder of monthly pay. Variable pay or a bonus may sit on top, paid once or twice a year.
Then there are items the employer pays but you do not receive as salary. The largest is the employer's contribution to your provident fund: 12% of basic. Many offer letters also include gratuity, provisioned at 4.81% of basic, which is fifteen days' wages a year on a 26-day month. Some include insurance premiums and other benefits.
The employer's PF goes into your EPF account and gratuity is paid only when you leave. Both are part of your pay in the long run and neither is part of your salary this month.
A ₹12 lakh CTC, line by line
With basic at half of CTC, PF at 12% of basic, gratuity counted in the CTC and professional tax of ₹200 a month, under the new regime:
| Component | A year | A month |
|---|---|---|
| Basic pay + DA | ₹6,00,000 | ₹50,000 |
| Allowances and other pay | ₹4,99,154 | ₹41,596 |
| Employer PF | ₹72,000 | ₹6,000 |
| Gratuity | ₹28,846 | ₹2,404 |
| Cost to company | ₹12,00,000 | ₹1,00,000 |
| Less your PF | −₹72,000 | −₹6,000 |
| Less professional tax | −₹2,400 | −₹200 |
| Less income tax | ₹0 | ₹0 |
| Take-home | ₹10,24,754 | ₹85,396 |
CTC divided by twelve is ₹1,00,000. The take-home is ₹85,396 a month. Income tax is nil, because taxable salary after the standard deduction stays inside the rebate limit; almost the whole gap is provident fund — counted twice, once from each side — and gratuity.
Provident fund: 12% of basic, or of ₹15,000
The law requires PF contributions on wages up to ₹15,000 a month, and allows both employer and employee to contribute on that ceiling rather than on the full basic. Many employers contribute on the full basic; some cap it, which means 12% of ₹15,000, or ₹1,800 a month from each side.
On the ₹12 lakh CTC above, capping PF changes your own contribution from ₹72,000 to ₹21,600 a year, and the monthly take-home rises from ₹85,396 to ₹93,796.
That extra take-home is not free money. It is retirement savings moved into current pay, and it comes with the loss of the tax-free compounding EPF offers. Whether that trade is right depends on whether the money is needed now.
Income tax on salary for FY 2026-27
Under the new regime, salary income gets a standard deduction of ₹75,000 and is then taxed on these slabs:
| Taxable income | Rate |
|---|---|
| ₹0 to ₹4,00,000 | 0% |
| ₹4,00,000 to ₹8,00,000 | 5% |
| ₹8,00,000 to ₹12,00,000 | 10% |
| ₹12,00,000 to ₹16,00,000 | 15% |
| ₹16,00,000 to ₹20,00,000 | 20% |
| ₹20,00,000 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
A section 87A rebate cancels the tax entirely when taxable income is ₹12 lakh or less, which is why a gross salary up to ₹12.75 lakh pays nothing. Above the limit the rebate disappears in full, and a 4% health and education cess applies to the tax.
Here is how take-home pay moves with CTC on the same assumptions:
| CTC | Take-home a month | Income tax a year |
|---|---|---|
| ₹6 lakh | ₹42,598 | ₹0 |
| ₹8 lakh | ₹56,864 | ₹0 |
| ₹12 lakh | ₹85,396 | ₹0 |
| ₹15 lakh | ₹1,00,309 | ₹77,835 |
| ₹20 lakh | ₹1,29,340 | ₹1,57,440 |
| ₹30 lakh | ₹1,80,695 | ₹3,97,140 |
| ₹50 lakh | ₹2,75,726 | ₹9,68,700 |
Up to ₹12 lakh, take-home pay stays at about 85% of CTC, because only PF, gratuity and professional tax come off. Once the rebate is gone, tax rises much faster than CTC and the share falls — to about 66% at ₹50 lakh.
The old regime, or the new
The old regime keeps the lower standard deduction of ₹50,000 and allows the deductions the new regime removed: section 80C, including your own PF, up to ₹1.5 lakh; the HRA exemption; health insurance under 80D; home-loan interest; and the rest.
On a ₹20 lakh CTC, the new regime takes home ₹1,29,340 a month. Under the old regime, with other 80C investments filling the ₹1.5 lakh limit and ₹2 lakh of HRA exemption and other deductions, it takes home ₹1,21,543.
Even with those deductions, the new regime is ahead here by ₹7,798 a month. Which regime is better is mostly a matter of deductions rather than salary. Somebody with a large HRA exemption and a home loan often does better under the old; somebody with few deductions almost always does better under the new. The income tax calculator compares the two on your own figures.
Professional tax
Professional tax is levied by states, not by the central government, and not every state levies it. Where it applies it is commonly ₹200 a month, sometimes with a different amount in one month of the year, and Article 276 of the Constitution caps it at ₹2,500 a year for any one person.
Under the old regime professional tax is deductible from salary income. Under the new regime it is not.
Variable pay and bonuses
Variable pay inside a CTC is not paid monthly, and it is taxed at your highest slab rate because it sits on top of your fixed salary. That is how the calculator treats it: the monthly take-home carries tax on fixed pay alone, and the bonus carries the extra tax it causes.
On a ₹30 lakh CTC with no variable component, monthly take-home is ₹1,80,695. If ₹3 lakh of the same CTC is variable pay, monthly take-home falls to ₹1,63,378 and the bonus arrives as ₹2,07,810 after tax.
Reading an offer letter
The CTC on an offer letter is a total. The useful questions are about what it is made of:
- Is gratuity inside the CTC? If it is, it is a provision paid only after qualifying service, and it should not count as pay when comparing jobs you might leave within five years.
- Is PF on the full basic or on ₹15,000? The same CTC gives a different take-home pay, and different savings, depending on the answer.
- How much is variable, and is any of it guaranteed? A target-linked bonus inside the CTC is pay you may not receive, and the part you do receive is taxed at your top slab.
- What is the basic? PF, gratuity, the HRA exemption and often increments are all calculated from it, so a larger basic changes more than one line.
- Are insurance, meal cards or other benefits counted? They have value, but not as salary, and they make two CTCs hard to compare directly.
Comparing offers on monthly take-home pay, with the variable part set aside, is the comparison that matches what actually arrives in the account.
What this calculator assumes
- Basic pay includes dearness allowance, and PF is 12% of it from each side, or of the ₹15,000 wage ceiling when capped.
- Gratuity, when included, is 15/26 of a month's basic for each year — 4.81% of annual basic.
- Income tax uses the current year's slabs, standard deduction, rebate, surcharge and cess, with the income tax calculator's own engine.
- HRA exemption is not worked out; under the old regime it can be entered as a deduction.
- Insurance premiums, meal cards and other benefits in a CTC are treated as part of allowances.