Your offer letter says a number like ₹12 lakh CTC. Your first payslip shows something closer to ₹91,000 a month, not the ₹1 lakh you might expect from dividing by 12. Nothing has gone missing. CTC and in-hand pay measure two different things, and the gap between them is made of a handful of lines you can work out yourself.
This post walks through each line of a salary breakup, then runs two full examples from CTC to monthly in-hand pay.
This is informational, not tax advice. Every employer structures pay differently, so treat these figures as a close estimate and check your own payslip or offer letter.
What is in a CTC
CTC (Cost to Company) is the total a company spends to employ you in a year. It has three kinds of money in it:
- Gross pay: the salary you actually earn each month, before deductions. This is basic, HRA and special allowance.
- Employer contributions: your employer's PF and gratuity. These sit inside CTC but are never paid to you monthly.
- Everything else the offer letter lists, such as insurance or bonuses. These vary by company and are not included in the examples below.
That is why the first step is always CTC minus employer PF and gratuity = gross pay.
The lines of a salary breakup
| Line | What it is | How it is usually set |
|---|---|---|
| Basic pay | The core of your salary and the base for PF and gratuity | 40% to 50% of CTC is common |
| HRA | House rent allowance | 40% of basic in non-metro cities, 50% in metros |
| Special allowance | The balancing figure that makes gross pay add up | Whatever is left after basic and HRA |
| Employer PF | 12% of PF wages, paid by your employer | Inside CTC, not paid to you |
| Gratuity | About 4.81% of wages, set aside for when you leave | Inside CTC, not paid to you |
| Employee PF | 12% of PF wages, deducted from your gross | Comes out of your pay |
| Professional tax | A state tax, capped at ₹2,500 a year | Depends on your state |
| Income tax (TDS) | Tax on salary, deducted monthly | New-regime slabs by default |
Special allowance is the line people overlook. It is not a fixed rate. It is simply gross pay minus basic and HRA, so it changes whenever basic or HRA changes.
How PF is worked out now
The EPFO wage ceiling was raised from ₹15,000 to ₹25,000 a month with effect from 17 September 2026. Most employers cap PF at that ceiling, which makes employee PF and employer PF each ₹3,000 a month at most. Some employers contribute on your full basic instead, which is a larger deduction. Our EPFO wage ceiling explainer covers who is affected.
One more rule matters for the breakup. Under the new labour codes, if allowances make up more than half of your pay, the excess counts as wages for PF and gratuity. In practice this means PF and gratuity are worked out on at least half of your gross pay, even when your basic is set lower.
Example 1: ₹12 lakh CTC
Assumptions: basic is 50% of CTC, HRA is 50% of basic, Karnataka professional tax, PF capped at the ₹25,000 ceiling, new tax regime.
| Line | Per year |
|---|---|
| CTC | ₹12,00,000 |
| Less: employer PF (12% of ₹3 lakh capped wages) | ₹36,000 |
| Less: gratuity | ₹28,860 |
| Gross pay | ₹11,35,140 |
| Basic | ₹6,00,000 |
| HRA | ₹3,00,000 |
| Special allowance | ₹2,35,140 |
| Less: employee PF | ₹36,000 |
| Less: professional tax (Karnataka) | ₹2,500 |
| Less: income tax | ₹0 |
| In-hand pay | ₹10,96,640, or about ₹91,400 a month |
Income tax is zero here. Taxable salary is ₹11,35,140 minus the ₹75,000 standard deduction, or ₹10,60,140. That is under ₹12 lakh, so the section 87A rebate cancels the tax completely.
Example 2: ₹18 lakh CTC
Same assumptions, with a higher CTC.
| Line | Per year |
|---|---|
| CTC | ₹18,00,000 |
| Less: employer PF | ₹36,000 |
| Less: gratuity | ₹43,290 |
| Gross pay | ₹17,20,710 |
| Less: employee PF | ₹36,000 |
| Less: professional tax (Karnataka) | ₹2,500 |
| Less: income tax and cess | ₹1,34,308 |
| In-hand pay | ₹15,47,902, or about ₹1,29,000 a month |
At this level tax appears, and the new regime slabs decide how much. The New Tax Regime guide for salaried employees explains the slabs slice by slice.
Why basic pay changes your in-hand salary
Change only one thing in Example 2, and let your employer contribute PF on your full basic instead of the ₹25,000 ceiling:
| PF capped at ₹25,000 | PF on full basic | |
|---|---|---|
| Employer PF | ₹36,000 | ₹1,08,000 |
| Gross pay | ₹17,20,710 | ₹16,48,710 |
| Employee PF | ₹36,000 | ₹1,08,000 |
| In-hand pay a month | about ₹1,29,000 | about ₹1,18,100 |
The monthly in-hand amount falls by roughly ₹10,900 a month, but the CTC is the same. The money has not disappeared. It has moved into your PF account. That is real long-term saving, but it is not spendable now, so it is worth asking HR which way your PF is calculated before you compare two offers.
What to check before you accept an offer
- Ask for the breakup, not just the CTC. Two ₹18 lakh offers can differ by over ₹10,000 a month in hand.
- Ask whether PF is on the ₹25,000 ceiling or on full basic.
- Check whether gratuity and insurance sit inside CTC, because they reduce gross pay.
- Confirm your work state, because professional tax follows where you work. See our professional tax slabs post.
- Ask if there is a variable pay or bonus in the CTC. It is paid later and only if targets are met, so it does not appear in monthly pay.
Work out your own breakup
Put your CTC, basic percentage, HRA percentage and state into the Salary Calculator. It shows the full breakup, monthly in-hand pay, and the tax, and you can switch the PF setting between the ₹25,000 ceiling, the old ₹15,000 ceiling and full basic to match your employer. For a tax-only view, use the Income Tax Calculator.