CTC vs in-hand salary: how to read your first salary slip
Your offer letter says one number and your bank account shows a smaller one. Here is where the difference goes, explained line by line.
By Yeem Team ·
Your offer letter says your CTC is six lakh rupees a year. You divide by twelve, expect fifty thousand a month, and then your first salary lands well below that. Nothing has gone wrong. CTC and in-hand salary are simply measuring different things.
This guide explains what usually sits between the two numbers so that you can read an offer properly and plan your money with the right figure. Every company structures pay a little differently, so always check your own offer letter and payslip, and ask HR about anything that is not clear.
What CTC actually means
CTC means cost to company. It is the total amount your employer expects to spend on you in a year, not the amount you will receive. It usually includes three kinds of money:
- Money paid to you every month, such as basic pay and allowances
- Money paid on your behalf, such as the employer's share of Provident Fund and sometimes insurance premiums
- Money you may receive later or only under conditions, such as gratuity or a performance bonus
Only the first group arrives in your bank account each month, and even that has deductions taken out first.
The parts of your monthly pay
Basic salary is the core of your pay. Many other items, including Provident Fund and gratuity, are worked out as a percentage of basic, so its size matters more than it first appears.
House Rent Allowance (HRA) is meant to help with rent. If you live in a rented home, part of it may be exempt from tax under the old tax regime, depending on the rules that apply to you.
Special allowance and other allowances make up the rest of your fixed monthly pay. They are usually fully taxable.
Add these together and you get your gross monthly salary.
What gets deducted before it reaches you
Employee Provident Fund (EPF). Usually 12 percent of your basic pay is deducted for your EPF account. Your employer contributes a matching amount, and that employer share is normally counted inside your CTC. The money is still yours: it is retirement savings that earns interest. It just is not available to spend each month. Some employers calculate this on a capped amount of basic pay, so check your payslip for your actual figure.
Professional tax. Some states charge a small monthly professional tax, and others do not charge it at all. Where it applies, it is a small amount each month and can never be more than 2,500 rupees in a year.
Income tax (TDS). Your employer deducts tax from your salary every month, based on your expected income for the year and the tax regime you choose. Tell HR early which regime you want and submit any proofs they ask for, or the deduction may be higher than necessary.
What is left after these deductions is your net or in-hand salary.
The parts of CTC you will not see monthly
Employer PF contribution. As above, it goes to your EPF account, not your bank account.
Gratuity. Gratuity is a lump sum paid when you leave, but generally only after you complete five years of continuous service with the same employer. Many companies include an estimated yearly amount for it in your CTC. If you leave before five years, you will usually not receive it.
Variable pay or bonus. If part of your CTC is a performance bonus, it may be paid once or twice a year, and the amount can depend on your performance and the company's. Plan your budget without counting on it.
Insurance and benefits. Health insurance premiums, meal cards and similar benefits are sometimes shown as part of CTC.
A simple example
Imagine an offer with a CTC of 6,00,000 rupees a year. The breakdown might include fixed pay, an employer PF contribution, an estimated gratuity amount and a variable bonus. Once you take out the employer PF, gratuity and the bonus, which do not arrive monthly, and then subtract your own PF, any professional tax and TDS from the fixed pay, the monthly amount in your bank account can easily be noticeably below the 50,000 you expected.
The exact numbers depend entirely on how your company structures the offer, which is why the same CTC can mean different take-home pay at two companies.
Questions to ask before you accept
- What is the fixed part of the CTC, and what is variable?
- How is the bonus decided, and when is it paid?
- Is gratuity included in the CTC figure?
- Roughly what will my monthly in-hand salary be?
HR teams are asked these questions all the time, and a good one will give you a clear answer. When you compare two offers, compare the in-hand salary and the fixed pay, not just the CTC. A bigger headline number with a large variable part is not always the better deal.