CTC vs in-hand salary: where the difference goes
By the True HR editorial team · Reviewed by empanelled labour law lawyers
Published · Updated · 8 min read
The short answer
CTC is everything your employer spends on you; in-hand is what reaches your bank. The gap is employer PF, gratuity provision, employer NPS, insurance premiums and variable pay held for later, plus your own deductions: employee PF, Professional Tax and TDS. On a ₹12,00,000 CTC in Karnataka, in-hand works out to about ₹91,515 a month.
What is the difference between CTC and in-hand salary?
CTC (Cost to Company) is an accounting number: everything your employer spends on employing you in a year. In-hand salary is a banking number: what actually lands in your account each month. They are connected by two subtractions. First, parts of CTC never come to you as monthly cash at all: employer PF (Provident Fund), the gratuity provision, employer NPS (National Pension System) and insurance premiums. What remains is your gross salary. Second, your own deductions come off that gross: employee PF, Professional Tax and TDS (Tax Deducted at Source). What survives both subtractions is in-hand.
Neither number is a lie, but only one of them buys groceries. The mistake is comparing offers, or planning EMIs, on CTC divided by 12. Always work the waterfall down to monthly in-hand first.
Where does the CTC minus in-hand difference go?
The difference is not lost; most of it is parked in your name and reaches you later, on conditions. Here is where each rupee sits and when you actually see it.
| Component | Typical size | When you actually see the money |
|---|---|---|
| Employer PF | 12% of wages up to the ₹25,000 a month ceiling, so ₹3,000 a month once your wages reach it | In your EPF account now; cash at withdrawal or retirement |
| Gratuity provision | 4.81% of wages | After 5 years of continuous service, or one year on a fixed-term contract, when you leave |
| Employer NPS | Often 10% to 14% of basic, where the employer offers it | At retirement, through your NPS corpus |
| Group insurance premiums | Varies by employer and cover | Never as cash; you get health or life cover instead |
| Variable pay holdback | Often 10% to 30% of CTC | Quarterly or annually, and only to the extent targets are met |
How does a ₹12,00,000 CTC become ₹91,515 in hand?
Here is the full waterfall for a ₹12,00,000 CTC in Karnataka with a standard structure: basic at 40% of CTC, HRA at 40% of basic, employer PF on wages up to the ₹25,000 a month ceiling, a gratuity provision of 4.81% of wages, no variable pay, and the new tax regime. These are the same defaults the CTC calculator on this site uses, so you can reproduce every line yourself.
Wages are the base for PF and gratuity since the Code on Social Security, 2020 took effect on 21 November 2025. Basic pay counts as wages; HRA and other allowances are left out, but only up to half of gross pay. Here basic is ₹4,80,000, less than half of gross pay, so wages are half of gross: ₹5,68,338 a year. That is why the gratuity line is larger than a calculation on basic alone would give. Employers classify allowances differently, so your own sheet may show a different wage figure.
The TDS line deserves a pause. Gross salary is ₹11,36,676. Take away the ₹75,000 standard deduction and taxable income is ₹10,61,676, which is under the ₹12,00,000 rebate limit (section 156 of the Income-tax Act, 2025; earlier section 87A), so income tax for the year is nil. That is why a 12 lakh CTC in FY 2026-27 loses money only to PF and Professional Tax, not to tax.
| Line | Annual amount | How it is worked out |
|---|---|---|
| CTC | ₹12,00,000 | The offer letter number |
| Less: employer PF | ₹36,000 | 12% of the ₹25,000 a month wage ceiling (₹3,000 x 12); wages are above the ceiling |
| Less: gratuity provision | ₹27,324 | 4.81% of wages ₹5,68,338 |
| Gross salary | ₹11,36,676 | Basic ₹4,80,000 + HRA ₹1,92,000 + special allowance ₹4,64,676 |
| Less: employee PF | ₹36,000 | Your 12%, also on the ₹25,000 ceiling |
| Less: Professional Tax | ₹2,500 | Karnataka: ₹200 a month from a ₹25,000 salary, ₹300 in February |
| Less: TDS | Nil | Taxable ₹10,61,676 after the ₹75,000 standard deduction; under ₹12,00,000, so the rebate makes tax nil |
| Net annual in-hand | ₹10,98,176 | ₹11,36,676 minus ₹36,000 minus ₹2,500 |
| Monthly in-hand | ₹91,515 | ₹10,98,176 divided by 12 |
Why do two offers with the same CTC pay differently?
Because CTC is a total, not a structure. Two ₹12,00,000 offers can differ by thousands a month in-hand. If one company contributes PF on your full wages instead of stopping at the ₹25,000 ceiling, which needs a joint option from you and the employer, your monthly PF outgo rises (12% of ₹60,000 is ₹7,200 against ₹3,000 at the ceiling), though the extra sits in your own EPF account. If one offer holds 20% as variable pay, your assured monthly cash drops by a fifth and the rest depends on ratings and company performance. How pay is split between wages and excluded heads such as HRA changes the PF and gratuity lines; employer NPS and richer insurance inside CTC reduce cash now as well.
Some offers also pad CTC with one-time joining bonuses, ESOP grants at face value, or notional items like free meals and cab allowances. None of these are wrong, but they make a headline CTC comparison meaningless. The only fair comparison is the same waterfall, run on both structure sheets.
What should you ask for before accepting an offer?
You are allowed to negotiate the structure, not just the number. HR teams expect these questions from careful candidates, and the answers take minutes to give.
- The full structure sheet (salary annexure) in writing, not just the CTC figure
- Which pay heads the employer counts as wages, and whether PF stops at the ₹25,000 ceiling or runs on full wages
- Variable pay percentage, the payout cycle, and last year's actual average payout
- Whether employer NPS is offered; it is extra retirement money and tax-efficient under section 124 of the Income-tax Act, 2025 (earlier 80CCD(2))
- Whether employer PF and gratuity are inside the quoted CTC or over and above it
- Insurance details: who is covered, the sum insured, and the premium being counted in CTC
- Any joining bonus clawback period, and whether ESOPs in the CTC have a vesting schedule
How do you check the numbers yourself?
Run your own offer through the CTC to take-home calculator on this site. Enter the CTC, basic percentage, variable percentage, your state and your rent, and it produces the same waterfall as the table above: employer costs, gross, each deduction, and monthly in-hand under both tax regimes. Five minutes with the calculator before you sign beats twelve months of surprise after payroll runs.
If the offer's own annexure and the calculator disagree, ask the employer to walk you through their sheet line by line. A good payroll team can; a vague answer is itself useful information.
Sections and Acts cited
- Code on Social Security, 2020: Chapter III (provident fund), Chapter V (gratuity) and section 2(88) (wages)
- Employees' Provident Funds Scheme, 2026
- Income-tax Act, 2025
Frequently asked questions
01Is it legal for employer PF and gratuity to be part of CTC?
Yes. CTC is a cost summary, not a legal term, and employer PF and the gratuity provision are genuine costs of employing you. What matters is that the deductions from your gross follow the law and the employer contributions actually reach your EPF account, which you can verify in your EPFO passbook.
02Why is gratuity in my CTC when I may leave before 5 years?
The gratuity provision (4.81% of wages) is money your employer sets aside for a liability that matures after 5 years of continuous service, or one year if you are on a fixed-term contract, under the Code on Social Security, 2020. If you leave earlier, you do not receive it. That is a fair negotiation point: a CTC heavy on gratuity is worth less to someone planning a shorter stint.
03Is variable pay guaranteed?
No. Variable pay is conditional on individual, team or company performance, and payouts of 70% to 90% of target are common in average years. When comparing offers, count only fixed pay as certain and ask for the company's actual payout history for your band.
04How much is a ₹12,00,000 CTC in hand per month?
With a standard structure in Karnataka (basic 40%, PF on the ₹25,000 ceiling, no variable) and the new tax regime for FY 2026-27, about ₹91,515 a month. Income tax is nil because taxable income of ₹10,61,676 falls under the ₹12,00,000 rebate limit; only PF and Professional Tax reduce the gross.
05Why is this lower than the in-hand figures I saw last year?
Three things changed. PF is now 12% of wages up to ₹25,000 a month; the ceiling was ₹15,000 until 16 September 2026. Gratuity is provided on wages rather than basic since the Code on Social Security took effect on 21 November 2025. And Karnataka Professional Tax is ₹2,500 a year with the ₹300 February deduction. More of your CTC now goes into your PF account and your future gratuity, and less into the monthly credit.
06Can my in-hand salary fall after a hike?
It can, briefly or by design. Crossing a Professional Tax slab, entering a TDS bracket, a restructure that raises the wages PF is computed on, or a higher variable component can all trim monthly cash even as CTC rises. Rerun the waterfall on the new structure before assuming the hike shrunk.