CTC vs In-Hand Salary: What Your Offer Letter Really Means

This post goes through each line of a salary annexure, then works a full example with illustrative numbers. The tax and payroll rules come from official sources as of October 2026 and they do change. This is general information, not tax advice; for your own case, ask HR or a chartered accountant.

What is CTC?

Expand the letters and you get cost to company: everything a firm expects to spend on you in a year. Part of that never reaches your bank account in a regular month.

It splits into three layers:

• Monthly gross: the salary paid to you every month before deductions (basic, HRA, allowances).
• Employer-side costs: money the company pays on your behalf, like its share of your Provident Fund and the provision it keeps for your gratuity.
• Conditional or one-time pay: variable pay that depends on performance, and a joining bonus paid once.

Your in-hand or take-home salary is the monthly gross minus deductions such as your own PF share, professional tax and income tax. Companies quote CTC because it is the biggest number. You live on in-hand.

The parts of a salary breakdown

Your offer letter will usually have an annexure attached, a table listing the salary components. Each company names them a little differently.

Basic salary

Basic is the core of your pay and the figure many other components are calculated from. PF and gratuity are both worked out on basic (plus dearness allowance, if your employer pays DA, which most private companies don't).

One recent change affects this. The four labour codes came into force on 21 November 2025, according to the Ministry of Labour and Employment. Under the Code on Wages, if allowances make up more than half of your total pay, the excess is added back to "wages" for calculating things like gratuity. In practice, many companies now keep basic at roughly half of fixed pay. Expect basic to take a bigger share of your CTC than it did in offers a few years ago.

HRA

House rent allowance is meant to cover rent. It is often set at 40% or 50% of basic depending on the city and the company. Under the old tax regime, part of HRA can be tax-exempt if you pay rent. Under the new tax regime, which is now the default, there is no HRA exemption, so HRA is simply taxable salary.

Special allowance and other allowances

Special allowance is the balancing figure: whatever is left of fixed pay after basic and HRA. You may also see conveyance or meal allowances. All are paid monthly as part of your gross.

Employer PF contribution

Most people misread this line. According to the Employees' Provident Fund Organisation (EPFO), the employee contributes 12% of wages (basic plus DA) to EPF, and the employer contributes a matching 12%. Of the employer's 12%, 8.33% goes to the Employees' Pension Scheme and 3.67% to your EPF account. The pension share is calculated on a wage ceiling, which the government raised from ₹15,000 to ₹25,000 a month from 17 September 2026, the first change since September 2014.

When basic is above the ceiling, many companies calculate PF only on that ₹25,000, so both shares come to ₹3,000 a month. Others calculate it on your full basic. Check which one your offer uses, because it changes your in-hand figure.

The employer's share sits inside your CTC but goes to your EPF account, not your bank. It's still yours. You just can't spend it this month.

Gratuity

When you leave after enough years of service, your employer pays you a lump sum called gratuity. Under the Code on Social Security, 2020, as explained by the Press Information Bureau and the Ministry of Labour, it is normally payable after five years of continuous service, at 15 days' wages for each completed year. Fixed-term employees qualify after one year, on a proportionate basis.

Companies often show a yearly gratuity figure in CTC, commonly about 4.81% of basic (15 days' pay out of a 26-day month, spread over 12 months). Leave in your second year as a regular employee and you normally won't see this money at all, which makes it the least real part of a fresher's CTC.

Variable pay

Whatever your offer calls it (variable pay, performance bonus, incentive), this part depends on your rating and on how the company does. Some firms pay it quarterly, some half-yearly, some once a year. The offer shows the full target amount. You could get all of it, part of it or nothing, and a new joiner's first payout is sometimes pro-rated for the months actually worked.

Joining bonus

A one-time amount paid in your first month or after a few months. Some companies include it in the first year's CTC, which makes the headline number look bigger than your second-year pay will be. Joining bonuses often come with a clawback clause: leave within a stated period and you repay it. Reading an offer letter clause by clause covers what to check in that clause.

A worked example: ₹6 LPA, broken down

Suppose a BTech graduate from Coimbatore gets this offer from an IT services company in Chennai. The company, the city and every figure are made up for the example. Your offer will differ.

Before a single deduction, only ₹5,10,000 of the ₹6,00,000 is regular monthly salary. That's already ₹7,500 a month below the "CTC divided by 12" figure.

Deductions from the monthly gross

Employee PF: 12% of the basic of ₹22,500 = ₹2,700 a month. Basic here is below the ₹25,000 ceiling, so PF is worked out on all of it. Under the old ₹15,000 ceiling, many companies would have deducted only ₹1,800.

Professional tax: a tax on employment that some states levy and others don't. Article 276 of the Constitution caps it at ₹2,500 per person per year. The slabs differ by state, so for this example assume ₹200 a month. Check your state's rate on your first payslip.

Income tax (TDS): this one you work out for the whole year. Taxable salary is monthly gross plus the variable pay and joining bonus, if both are paid: ₹5,10,000 + ₹24,600 + ₹20,000 = ₹5,54,600. Under the new tax regime, a salaried person gets a standard deduction of ₹75,000, leaving ₹4,79,600.

According to the Income Tax Department, the new regime slabs are nil up to ₹4 lakh, 5% from ₹4 to 8 lakh, 10% from ₹8 to 12 lakh, 15% from ₹12 to 16 lakh, 20% from ₹16 to 20 lakh, 25% from ₹20 to 24 lakh, and 30% above ₹24 lakh. These slabs were set in Union Budget 2025-26, and we could find no change to them in Union Budget 2026-27. A Section 87A rebate of up to ₹60,000 applies when taxable income is ₹12 lakh or less.

On ₹4,79,600 the tax comes to 5% of ₹79,600, which is ₹3,980, and the rebate wipes it out. Income tax: nil.

The take-home figure

The student who expected ₹50,000 a month gets ₹39,600. Over the year, that is about ₹4.75 lakh in the bank from salary, plus the joining bonus once, plus whatever variable pay is actually paid. Separately, your own ₹2,700 plus the employer's ₹826 or so (its 3.67%) goes to your EPF account every month, and the employer's ₹1,874 or so (its 8.33%) goes to the pension scheme.

In hand salary calculation for a higher offer

Once tax kicks in, the picture shifts. Take an illustrative ₹14 LPA offer to a BSc Statistics graduate from Pune joining an analytics firm, where taxable salary after the standard deduction comes to ₹13 lakh. The rebate no longer applies because income is above ₹12 lakh.

Using the same slabs: nothing on the first ₹4 lakh, ₹20,000 on the next ₹4 lakh, ₹40,000 on the ₹4 lakh after that, and ₹15,000 on the last ₹1 lakh at 15%. That's ₹75,000. Add the 4% health and education cess, which the Income Tax Department applies to income tax in both regimes, and the total is ₹78,000 a year, roughly ₹6,500 a month taken out as TDS.

Old regime or new regime?

The new regime is the default. You can choose the old regime instead, which allows deductions such as HRA exemption and Section 80C investments, but has higher slab rates and a standard deduction of ₹50,000. At the salaries above, the new regime works out better or equal for most freshers, though your rent and investments can tip it. Your employer will ask which regime you want for TDS at the start of the year. Not sure? Ask a chartered accountant. One more thing: the Income Tax Act, 2025 replaced the 1961 Act from 1 April 2026, so section numbers you see quoted online may have changed even where the rules didn't.

Questions to ask HR before you accept

Before you accept, send HR a short email asking:

1. Is PF calculated on the ₹25,000 ceiling or on full basic?
2. Is the variable pay guaranteed in the first year, pro-rated, or fully performance-based? When is it paid?
3. Is the joining bonus part of the CTC figure, and is there a repayment clause?
4. What is the expected monthly in-hand amount?

Asking for the in-hand figure is normal. HR teams answer it every season. If a second offer is on the table and you want to compare or discuss numbers, read whether freshers can negotiate salary and what to say first.

CTC vs in hand salary when comparing two offers

A BCom graduate in Delhi has two offers: ₹4.5 LPA from a mid-sized firm, all fixed, and ₹5 LPA from another with ₹40,000 of variable pay and a ₹25,000 joining bonus. On paper the second wins. Strip out the variable pay and the joining bonus and its fixed part is ₹4.35 LPA at most, lower than the first offer.

When an offer lands, put its monthly gross next to the other's first, subtract the deductions, and only then look at the extras. Fixed pay is the part you can count on.

You can look at current roles and their pay in the Jobs listings.