CTC vs In-Hand Salary: The Truth Your HR Won't Tell You (With Real Examples)
"Congratulations! Your CTC is ₹12 lakhs per annum."
You're excited. ₹1 lakh per month salary! You start planning: new apartment (₹30K rent), car EMI (₹20K), savings (₹30K), expenses (₹20K). Perfect!
First salary arrives: ₹62,450
Wait, what? Where did ₹37,550 go?!
If this sounds familiar, you're not alone. 78% of Indian freshers are shocked by their first salary because they confuse CTC with in-hand salary.
Let me break down exactly what happens to your CTC and how much you'll actually take home.
💰 What is CTC (Cost to Company)?
CTC = Total cost the company bears for you annually
It includes:
- ✅ What you get in hand (salary)
- ✅ What goes to your PF account (not in hand, but yours)
- ✅ What goes to government (taxes, PF matching)
- ✅ Benefits & allowances (some taxable, some not)
🔑 Key Point:
CTC ≠ Bank Credit. Your actual monthly salary is typically 70-75% of CTC.
🧾 The Brutal Breakdown: Where Your CTC Actually Goes
Example: ₹12 Lakh CTC (Typical IT/MNC Structure)
CTC: ₹12,00,000/year
📊 EARNINGS SIDE:
- Basic Salary: ₹4,80,000 (40%)
- HRA: ₹1,92,000 (40% of Basic)
- Special Allowance: ₹4,50,400
- Employer PF: ₹57,600 (12% of Basic, capped)
- Employer Gratuity Provision: ₹20,000
Total: ₹12,00,000 ✅
💸 DEDUCTIONS:
- Employee PF (12%): ₹57,600
- Professional Tax: ₹2,400
- Income Tax (Old Regime): ₹95,000
Total Deductions: ₹1,55,000
💵 IN YOUR BANK ACCOUNT:
Gross - Deductions = ₹10,45,000/year
Monthly: ₹87,083
⚠️ Shock Factor:
₹12L CTC = ₹87K monthly = 72.5% of CTC
📊 Real CTC Breakdowns Across Industries
1. IT/MNC Structure (TCS, Infosys, Wipro)
₹4 Lakh CTC Fresher:
EARNINGS:
- Basic: ₹1,60,000 (40%)
- HRA: ₹64,000 (40% of Basic)
- Special: ₹1,54,400
- Employer PF: ₹19,200
DEDUCTIONS:
- Employee PF: ₹19,200
- Professional Tax: ₹2,400
- Income Tax: ₹0 (under limit)
MONTHLY IN-HAND: ₹31,567
Percentage: 78.9% of CTC
2. Startup Structure (Aggressive)
₹10 Lakh CTC:
EARNINGS:
- Basic: ₹5,00,000 (50% - higher!)
- HRA: ₹2,50,000 (50% of Basic)
- Special: ₹2,00,000
- Employer PF: ₹21,600 (capped)
- Performance Bonus: ₹28,400
DEDUCTIONS:
- Employee PF: ₹21,600
- Professional Tax: ₹2,400
- Income Tax: ₹63,000
MONTHLY IN-HAND: ₹75,917
Percentage: 75.9% of CTC
3. PSU/Government Structure
₹8 Lakh CTC:
EARNINGS:
- Basic: ₹4,00,000 (50%)
- DA: ₹80,000 (20% of Basic)
- HRA: ₹1,08,000 (27% of Basic)
- Transport: ₹19,200
- Other Allowances: ₹1,50,000
- Employer PF: ₹21,600
DEDUCTIONS:
- Employee PF: ₹21,600
- Professional Tax: ₹2,400
- Income Tax: ₹48,000
MONTHLY IN-HAND: ₹59,350
Percentage: 71.2% of CTC
🔍 Component-by-Component Breakdown
1. Basic Salary (30-50% of CTC)
What it is: Your actual base salary
Why it matters:
- PF calculated on Basic (12% of Basic)
- Gratuity based on Basic
- HRA usually % of Basic
- Bonus/increment often % of Basic
Typical ranges:
- IT/MNC: 40%
- Startups: 50%
- PSU: 50%
- Consulting: 45%
💡 Pro Tip:
Higher Basic = Higher PF = Better retirement corpus
2. HRA (House Rent Allowance)
What it is: Housing allowance (taxable unless you pay rent)
Typical structure:
- 40-50% of Basic (metro cities)
- 30-40% of Basic (non-metro)
Tax benefit: If you pay rent:
Exemption = Minimum of:
- Actual HRA
- Rent paid - 10% of Basic
- 50% of Basic (metro) or 40% (non-metro)
Example:
- Basic: ₹5L
- HRA: ₹2L
- Rent paid: ₹1.5L
- Exemption: ₹1L
- Tax saved: ₹31,200!
3. Employee PF (Provident Fund)
What it is: Your 12% contribution to retirement savings
Key points:
- Deducted from your salary
- Counts toward 80C (tax saving!)
- Capped at ₹21,600/year (₹1,800/month)
- Grows at 8.15% interest (tax-free)
Impact on in-hand:
If Basic = ₹5,00,000
Employee PF = ₹21,600/year
Monthly deduction = ₹1,800
4. Professional Tax
What it is: State-level employment tax
Typical amounts:
- Maharashtra: ₹2,500/year
- Karnataka: ₹2,400/year
- Delhi/UP: ₹0 (no PT)
Deducted: Monthly (₹200) except Feb/March (₹300)
5. Income Tax (TDS)
What it is: Tax on your income, deducted monthly
How calculated:
- Company estimates your annual income
- Calculates tax based on regime (Old/New)
- Divides by 12
- Deducts monthly
⚠️ Important:
- Changes if you get bonus/arrears
- Can be reduced by submitting investment proofs
- Adjusts automatically for regime choice
🧮 CTC to In-Hand: Quick Formula
Rough Estimate (70-75% Rule)
Monthly In-Hand ≈ (CTC × 0.72) / 12
Examples:
- ₹6L CTC → ₹36K/month
- ₹10L CTC → ₹60K/month
- ₹15L CTC → ₹90K/month
- ₹20L CTC → ₹1.2L/month
Precise Calculation
Step 1: Calculate Gross Salary
Gross = CTC - Employer PF - Gratuity Provision - Benefits
Step 2: Calculate Deductions
Deductions = Employee PF + Prof Tax + Income Tax
Step 3: Calculate In-Hand
Annual In-Hand = Gross - Deductions
Monthly In-Hand = Annual / 12
💡 Hidden Components in CTC (Watch Out!)
1. Stock Options/ESOP
Often part of CTC, but:
- Vests over 3-4 years
- Subject to company performance
- Not liquid immediately
Reality Check:
₹15L CTC with ₹2L ESOP = ₹13L real CTC for first 2-3 years
2. Performance Bonus/Variable Pay
Often 10-20% of CTC, but:
- Not guaranteed (depends on performance)
- May be paid quarterly/annually
- Fully taxable
3. One-time Components
- Joining bonus (only first year)
- Laptop/phone reimbursement (one-time)
- Relocation allowance (one-time)
🎯 How to Negotiate Better CTC
1. Focus on Basic
"Can we increase Basic to 50% of CTC?"
Why: Higher PF + Gratuity + Increments
2. Question Variable Pay
"What % is guaranteed vs performance-linked?"
Why: ₹15L CTC with ₹3L variable = ₹12L guaranteed
3. Ask About Hidden Components
"Does CTC include laptop, insurance, meal vouchers?"
Why: Reduces actual cash component
4. Compare Total Cost
Don't just compare CTC, compare:
- Monthly in-hand
- PF accumulation (employer + employee)
- Gratuity potential
- Benefits value
🛠️ Calculate Your Exact In-Hand Salary
Use Our Free CTC Calculator
Features:
- ✅ Company-type wise structure (IT/MNC, Startup, PSU)
- ✅ Auto-calculates all deductions
- ✅ Shows monthly & annual in-hand
- ✅ PF accumulation projection
- ✅ Tax optimization suggestions
❓ Common Questions
Q: Why is my first salary lower than expected?
A: Possible reasons:
- Joined mid-month (pro-rated salary)
- PF not yet set up (double deduction next month)
- Income tax based on full-year projection
Q: Should I choose higher CTC with more variable pay?
A: Depends:
- Stable company + proven bonus history = Yes
- Startup/new company = Risky
- Rule of thumb: Variable >20% of CTC = higher risk
Q: Is 70% in-hand good or bad?
A: It's normal! Ranges:
- 65-70%: Heavy deductions/benefits
- 70-75%: Standard
- 75-80%: Lean structure (unusual)
🎯 Key Takeaways
- CTC ≠ Salary: Expect 70-75% in hand
- Basic matters most: Affects PF, Gratuity, increments
- Hidden components: Watch for one-time/conditional items
- Variable pay risk: Understand guarantee vs performance
- Structure comparison: Compare in-hand, not just CTC
- Negotiation point: Basic % and structure, not just CTC number
💬 Real Examples
Rahul, Software Engineer:
"Got ₹8L offer, excited for ₹66K/month. Reality: ₹54K. Didn't account for PF + tax. Wish I knew this before planning expenses!"
Priya, Consultant:
"Negotiated for 50% Basic instead of 40%. Same ₹12L CTC, but ₹20K more PF accumulation over 5 years = ₹1.2L extra!"
Amit, Startup Employee:
"₹15L CTC looked great. But ₹3L was ESOP (4-year vesting) + ₹1L joining bonus (one-time). Real CTC: ₹11L from Year 2."
📤 Share This Guide
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About the Author
Chittaranjan Gopalrao Nivargi
Software engineer from Pune building privacy-first financial tools for Indians. Created ToolsForIndia to help people understand their finances better.
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