CTC
What goes into CTC
CTC is the total amount the company spends on an employee over the year. It includes salary paid to the employee as well as employer contributions and provisions such as PF and gratuity.
Employee salary components
- Basic salary is the PF and gratuity base. Must be at least 50% of total wages under the new Labour Codes.
- HRA for tax efficiency. Common practice is 50% of basic for metros and 40% for non-metros.
- Special allowances are residual fixed pay not classified elsewhere.
- Variable pay such as performance bonus, paid periodically and often excluded from PF calculation.
Employer statutory contributions (part of CTC)
- Employer PF contribution to the Employees' Provident Fund (EPF), administered by EPFO, is 12% of basic salary, subject to the statutory wage ceiling. That ceiling rose from ₹15,000 to ₹25,000 a month, approved by the Union Cabinet on 16 September 2026 and applicable from 17 September 2026 per the Ministry of Labour and Employment. Where basic plus DA exceeds ₹25,000, the mandatory contribution is capped at 12% of ₹25,000, which is ₹3,000/month for both employee and employer. Companies may choose to contribute on actual basic above the ceiling, but this is voluntary. Where basic is ₹25,000 or below, PF is calculated on actual basic.
- Gratuity provision is approximately 4.81% of annual basic. Not paid monthly, accrues for the employee, payable on exit after 5 years (or 1 year for fixed-term employees under the 2025 Labour Codes). The statutory ceiling on gratuity payable is ₹20 lakh, regardless of what the formula produces.
- Employer ESI contribution to the Employees' State Insurance scheme, administered by ESIC, is 3.25% of gross wages, applicable when gross wages are ₹21,000 per month or below (₹25,000 for persons with disabilities). ESI is calculated on gross wages, not basic salary. For example, an employee on ₹18,000 gross per month would attract employer ESI of ₹585/month and employee ESI of ₹135/month. Both examples in this guide have gross wages above ₹21,000, so ESI does not apply to them.
- Medical insurance group cover premium, if provided.
CTC = Basic + HRA + Allowances + Variable Pay
+ Employer PF + Gratuity provision + ESI + Insurance
+ Employer PF + Gratuity provision + ESI + Insurance
In Hand
What gets deducted before the bank credit
In hand salary is the gross salary left after employee PF, professional tax, ESI where applicable and income tax. Gross salary includes basic, HRA and other allowances. Employer contributions are separate and are not deducted from gross salary. Employers can automate these monthly deductions with payroll software for Indian SMEs.
Statutory deductions from employee
- Employee PF is 12% of basic salary. Where basic salary is ₹25,000 or below, the deduction is 12% of actual basic. Where basic exceeds ₹25,000, the statutory cap applies and the mandatory deduction is ₹3,000/month (12% of ₹25,000). That is ₹1,200 a month more than under the old ₹15,000 ceiling. The employer may choose to compute PF on actual basic above the ceiling, in which case the employee deduction rises proportionally.
- Employee ESI is 0.75% of gross wages, deducted only when the employee is within the ₹21,000 wage ceiling. Note that ESI is on gross wages, not basic. On a gross of ₹18,000, the employee deduction is ₹135/month.
- Professional Tax is a state levy. Not all states charge it. Maharashtra and Karnataka typically charge ₹200/month above a certain salary threshold. Verify the slab for each state where you have employees.
- Labour Welfare Fund employee share where applicable, very small and state-specific.
Income tax (TDS)
- New tax regime has a standard deduction of ₹75,000. Slabs start after ₹4,00,000. Taxable income up to ₹12,00,000 pays nil tax after the rebate of up to ₹60,000, which means a salary of about ₹12,75,000 attracts no TDS at all.
- Old tax regime allows Section 80C, HRA exemption, and other deductions. Beneficial for employees with significant investments and home loan interest.
Note: TDS is the employer's responsibility to deduct and deposit. If an employee submits wrong declarations and has a tax liability, the employer is still responsible for deducting the correct amount.
Real Examples
How does a CTC breakdown look for Indian salaries?
These examples are illustrative. The actual result depends on the company's PF policy, the employee's state, the tax regime and the way variable pay is structured. Figures are annual unless marked monthly.
Example 1: ₹3,00,000 CTC
Basic is ₹12,500/month, below the ₹25,000 EPF wage ceiling, so PF is on actual basic. Gross comes to ₹22,900/month, which exceeds the ₹21,000 ESI ceiling, so ESI does not apply. Income tax is nil under the new regime at this level.
| Component | Annual (₹) | Monthly (₹) | % of CTC |
|---|---|---|---|
| Employee receives (gross salary) | |||
| Basic salary | 1,50,000 | 12,500 | 50% |
| HRA | 60,000 | 5,000 | 20% |
| Special allowances | 64,800 | 5,400 | 21.6% |
| Gross salary | 2,74,800 | 22,900 | 91.6% |
| Employer statutory (not in hand, part of CTC) | |||
| Employer PF (12% of ₹12,500 basic, below ₹25,000 ceiling) | 18,000 | 1,500 | 6% |
| Gratuity provision (4.81% of basic) | 7,215 | 601 | 2.4% |
| Total CTC | 3,00,015 | 25,001 | 100% |
| Employee deduction | Monthly (₹) | Note |
|---|---|---|
| Employee PF | 1,500 | 12% of ₹12,500 basic (on actuals) |
| Professional Tax | 200 | Where applicable. Nil in states that don't charge PT. |
| Income tax TDS | 0 | Nil under new regime at this income level. |
| Approximate in-hand | 21,200 | Gross ₹22,900 minus ₹1,700 |
Example 2: ₹10,00,000 CTC with variable pay and benefits
This example loads ₹1,00,000 of variable pay plus insurance and other benefits into the CTC, as many offers do. On a plain ₹10 lakh structure with none of these, in hand is about ₹77,100 a month, as the CTC to in hand salary chart shows. Basic is ₹32,500/month, above the ₹25,000 EPF ceiling, so PF is capped at ₹3,000/month for both sides. Under the old ₹15,000 ceiling it was ₹1,800. Fixed gross is ₹65,000/month, above the ₹21,000 ESI ceiling, so ESI does not apply.
| Component | Annual (₹) | Monthly (₹) | % of CTC |
|---|---|---|---|
| Employee receives (gross salary) | |||
| Basic salary | 3,90,000 | 32,500 | 39% |
| HRA | 1,95,000 | 16,250 | 19.5% |
| Special allowances | 1,95,000 | 16,250 | 19.5% |
| Variable pay (performance bonus) | 1,00,000 | Paid annually | 10% |
| Fixed gross salary | 7,80,000 | 65,000 | 78% |
| Employer statutory (not in hand, part of CTC) | |||
| Employer PF (capped at ₹25,000 basic) | 36,000 | 3,000 | 3.6% |
| Gratuity provision (4.81% of basic) | 18,759 | 1,563 | 1.9% |
| Medical insurance (group) | 18,000 | 1,500 | 1.8% |
| Other benefits | 47,241 | 3,937 | 4.7% |
| Total CTC | 10,00,000 | 83,333 | 100% |
50% wage rule note: Basic here is ₹32,500 on fixed gross of ₹65,000, which is exactly 50% of fixed gross. This satisfies the Code on Wages 2019 requirement. Companies with lower basic proportions will need to restructure.
| Employee deduction | Monthly (₹) | Note |
|---|---|---|
| Employee PF | 3,000 | Capped at ₹25,000 basic |
| Professional Tax | 200 | Where applicable |
| Income tax TDS | 0 | Nil under the new regime. Taxable salary is ₹8,05,000 after the ₹75,000 standard deduction, and the rebate of up to ₹60,000 on income up to ₹12 lakh covers the tax. On the old regime the figure depends on HRA and 80C declarations. |
| Approximate in-hand | 61,800 | Fixed gross ₹65,000 less ₹3,200. Variable pay of ₹1,00,000 is paid separately. |
Salary Template
What salary structure should you use in offer letters?
This format can be used in an offer letter. State clearly whether PF is calculated on actual basic or capped at the statutory ceiling. Professional tax depends on the employee's state.
| Component | Annual (₹) | Monthly (₹) | Remarks |
|---|---|---|---|
| Fixed pay | |||
| Basic salary | Min 50% of total wages (new Labour Codes) | ||
| HRA | 50% of basic (metro) or 40% (non-metro) | ||
| Special allowances | Residual fixed pay | ||
| Gross salary | Monthly bank credit before deductions | ||
| Variable pay | |||
| Performance bonus | Paid periodically | Conditions apply | |
| Employer statutory (employer cost, not deducted from above) | |||
| Employer PF | 12% of basic (state if capped at ₹25,000) | ||
| Gratuity provision | 4.81% of basic, accrues annually. Statutory ceiling ₹20 lakh total payable. | ||
| ESI (if applicable) | 3.25% of gross wages, if gross ≤ ₹21,000 | ||
| Medical insurance | Group cover | ||
| Total CTC | Total annual employer cost | ||
| Employee deductions (not separate cash, deducted from gross) | |||
| Employee PF | 12% of basic (or ₹3,000 if capped) | ||
| Professional Tax | State-specific slab | ||
| ESI (if applicable) | 0.75% of gross wages | ||
| TDS | Based on chosen tax regime and declarations | ||
| Approximate in-hand | Subject to tax declarations | ||
Always state your PF computation policy in the offer letter. Employees who join expecting PF on actuals and discover it is capped on day one are a retention risk. Transparency here costs nothing.
FAQ
Common questions on CTC vs in hand salary
What is the difference between CTC and in hand salary?
CTC is the total annual cost the company incurs for the employee, including salary, employer PF, gratuity provision, ESI, and any insurance or benefits. In hand salary is what reaches the employee's bank account each month after employee PF, ESI, Professional Tax, and TDS are deducted from gross salary.
How do I calculate in hand salary from CTC?
Subtract employer statutory costs (employer PF, gratuity provision, ESI, insurance) from annual CTC to get annual gross. Divide by 12 for monthly gross. From monthly gross, subtract employee PF, employee ESI where applicable, Professional Tax for your state, and monthly TDS. The remainder is your in hand salary. On a ₹3 lakh CTC the in hand is roughly ₹21,200/month. On ₹10 lakh CTC it is roughly ₹61,800/month of fixed pay, with variable pay arriving separately.
Is PF calculated on actual basic or capped at ₹25,000?
Both are allowed. The legal minimum is 12% of basic salary up to the statutory wage ceiling, which is ₹25,000 a month from 17 September 2026. When basic is above ₹25,000, that minimum works out to ₹3,000 a month from the employee and ₹3,000 from the employer. Contributing on the full basic above the ceiling is voluntary. Whichever the company chooses should be stated clearly in the appointment letter or salary policy. Contributing on actual basic gives employees higher retirement savings.
What does the 50% wage rule mean for salary structuring?
Under the Code on Wages 2019, effective November 21, 2025, wages for statutory purposes must be at least 50% of total remuneration. If allowances exceed 50% of total pay, the excess is treated as wages for PF, ESI, and gratuity calculations. Companies that previously structured salaries with a small basic component to reduce statutory liability will need to restructure, or their compliance costs will rise as the effective wage base for calculations increases.
Does Professional Tax apply everywhere in India?
No. Professional Tax is a state subject. Some states levy it; others do not. Maharashtra, Karnataka, Andhra Pradesh, Telangana, West Bengal, and Gujarat are among states that charge it. The slabs differ by state. Always verify the current slab for each state where you have employees, as slabs can change in state budgets.
When does ESI apply?
ESI applies to employees whose gross wages are ₹21,000 per month or less (₹25,000 for persons with disabilities), in establishments with 10 or more employees. Once an employee's wages cross ₹21,000, they exit ESI coverage from the next contribution period. Employer ESI is 3.25% of gross wages; employee ESI is 0.75% of gross wages.
How should HRA be structured in a salary?
HRA is commonly set at 50% of basic salary for metro cities and 40% of basic elsewhere. Under the old tax regime, the HRA exemption is the lowest of the actual HRA received, that 50% or 40% of basic, and rent paid minus 10% of basic, so setting HRA at those levels gives eligible employees the full exemption. Under the new tax regime, HRA exemption is not available.
Sources
Sources and official references
- EPF wage ceiling of ₹25,000 from 17 September 2026: Ministry of Labour and Employment, Cabinet approval of 16 September 2026
- EPF contribution of 12% from employer and employee: Press Information Bureau
- ESI at 3.25% employer and 0.75% employee: ESIC, contribution rates
- ESI coverage up to ₹21,000 gross a month, ₹25,000 for persons with disabilities: ESIC, coverage
- Labour Codes in force from 21 November 2025: Press Information Bureau
- Gratuity ceiling of ₹20 lakh: Press Information Bureau
- Income-tax Act, 2025 in force from 1 April 2026: Income Tax Department press release
- New regime slabs, ₹75,000 standard deduction, no tax up to ₹12 lakh of taxable income: Business Standard, 1 February 2025. Slabs kept unchanged in the Budget for 2026-27: The Morung Express (IANS), 1 February 2026