An offer letter says ₹12,00,000 CTC. The first payslip says something closer to ₹88,276 a month — about ₹10,59,312 a year. Nothing has gone wrong. CTC is what you cost your employer, and several of the things you cost them never pass through your bank account.
Here is the whole path, line by line, with a worked example at each step.
Step 1 — the parts of CTC you never see monthly
Three items usually sit inside CTC but outside your monthly salary:
- Employer PF — 12% of basic, paid into your EPF account, not to you. On a ₹12L package with 40% basic that is ₹57,600 a year. It is your money, but you get it on exit or at retirement, not on the 1st.
- Gratuity provision — 4.81% of basic (₹23,088 a year here), set aside against a payout you only receive after five continuous years. Leave in year four and you never see it at all.
- Bonus or variable pay — real, but paid annually or quarterly against targets. Our example assumes none; if ₹1,00,000 of your CTC is variable, your monthly figure drops by roughly ₹8,300 and arrives later in a lump.
Take those out and you get gross salary — the part actually paid monthly. For our ₹12L example: ₹11,19,312 a year, or ₹93,276 a month.
How that gross splits
| Component | Per year | Per month |
|---|---|---|
| Basic (40% of CTC) | ₹4,80,000 | ₹40,000 |
| HRA (50% of basic) | ₹2,40,000 | ₹20,000 |
| Special allowance (the balancing figure) | ₹3,99,312 | ₹33,276 |
| Gross salary | ₹11,19,312 | ₹93,276 |
Special allowance is not a benefit — it is whatever is left after basic and HRA. That is why raising your basic percentage does not raise your CTC: it just moves money from one row to another, changing your PF, gratuity and HRA exemption along the way.
Step 2 — the three deductions
- Employee PF — another 12% of basic, this time out of your gross: ₹4,800 a month. Deducted, but not lost; it is saving, and under the old regime it also counts toward your ₹1.5 lakh 80C limit.
- Professional tax — a state levy, ₹200 a month in most states that charge it (₹2,500 a year is the statutory cap). Maharashtra, Karnataka, West Bengal and Tamil Nadu charge it; Delhi, Haryana and UP do not.
- Income tax (TDS) — usually the big one. On our ₹12 lakh example it is ₹0. That is not a typo: under the new regime for FY 2026-27, a taxable income up to ₹12,00,000 attracts no tax at all, and after the ₹75,000 standard deduction this package lands below the line. At ₹18 lakh CTC the same calculation gives ₹1,25,625 a year — ₹10,469 a month.
₹12 lakh CTC: gross ₹93,276 − PF ₹4,800 − professional tax ₹200 − tax ₹0 = ₹88,276 a month.
₹18 lakh CTC: gross ₹1,39,914 − PF ₹7,200 − professional tax ₹200 − tax ₹10,469 = ₹1,22,045 a month.
In-hand salary by CTC
Same assumptions all the way down — 40% basic, metro city, EPF on full basic, ₹200 professional tax, no rent declared, no extra deductions — so the only thing changing between rows is the package size.
| Annual CTC | Gross (annual) | Income tax | Monthly in-hand | Better regime |
|---|---|---|---|---|
| ₹6,00,000 | ₹5,59,656 | ₹0 | ₹44,038 | New Regime |
| ₹9,00,000 | ₹8,39,484 | ₹0 | ₹66,157 | New Regime |
| ₹12,00,000 | ₹11,19,312 | ₹0 | ₹88,276 | New Regime |
| ₹18,00,000 | ₹16,78,968 | ₹1,25,625 | ₹1,22,045 | New Regime |
| ₹25,00,000 | ₹23,31,900 | ₹2,74,794 | ₹1,61,226 | New Regime |
| ₹40,00,000 | ₹37,31,040 | ₹7,03,884 | ₹2,36,063 | New Regime |
Two things worth noticing. The gap between CTC and take-home widens as the package grows — that is the progressive slab structure doing its job. And in-hand as a share of CTC falls from roughly 88% at ₹6,00,000 to about 71% at ₹40,00,000.
Why two people on identical CTC take home different amounts
The package is the same; the structure is not. The three levers that actually move your number:
- Basic percentage. A lower basic means less PF deducted and more cash now — and a smaller retirement balance and gratuity later.
- The PF wage ceiling. Some employers cap PF at the statutory ₹15,000 wage (₹1,800 a month each side) instead of applying 12% to full basic. That is more take-home and less saving.
- Regime choice. Every row in the table above comes out ahead on the new regime. The companion guide on old versus new tax regime works out exactly how much you would need to deduct before that stops being true.
The HRA assumption worth checking
The standard advice is that if you rent in a metro, the old regime's HRA exemption probably wins. On a conventional 40%-basic structure it usually does not, and the reason is a cap most articles skip: HRA exemption cannot exceed the HRA you actually receive, which here is 50% of basic — only 20% of CTC.
Take the ₹18 lakh package, add ₹40,000 a month of metro rent and a fully used ₹1.5 lakh 80C. HRA exemption comes to ₹3,60,000, a genuinely large deduction — and the old regime still pays ₹2,312 a month less than the new one (₹1,19,733 against ₹1,22,045).
What actually flips it is a home loan: ₹2 lakh of §24(b) interest on top of everything above is usually enough. Rent alone, on a typical structure, is not — which is worth knowing before you spend a January collecting rent receipts.
Working out your own number
The table above fixes every assumption. Yours will differ — different basic split, rent, state, bonus, PF treatment. The CTC salary calculator takes all of them and shows the full salary slip plus both regimes side by side, so you can see which one your employer should be deducting under.
Once you know your monthly number, the useful next question is what to do with it — a SIP calculator will show what even a small monthly amount compounds into over a working life.