CTC vs In-Hand Salary: How to Explain an Offer in India

CTC vs in-hand salary is the gap between what a company spends on you and what lands in your bank account. CTC (cost to company) includes employer PF and a gratuity provision. In-hand salary is gross pay minus employee PF, professional tax and income tax. On a ₹12 lakh CTC with a typical structure, in-hand is roughly ₹93,900 a month.

Who this is for: founders writing their first offer letters, and anyone who has had a candidate ask "but what will I actually get?"

I have watched more than one good offer fall apart because the candidate did their own maths after accepting and felt misled. The fix is simple: show the in-hand number in the offer, next to the CTC.

What's inside a CTC

A CTC in India usually has three layers.

In-hand salary starts from gross salary, then removes three things:

1. Employee PF: 12% of PF wages. Many startups calculate PF on wages capped at ₹15,000 a month, so the employee share is ₹1,800. Others use actual basic pay, which is higher.
2. Professional tax: a state tax, at most ₹2,500 a year. In states like Maharashtra and Karnataka it is about ₹200 a month. Some states don't levy it.
3. Income tax (TDS): worked out on the year's taxable salary and spread across the months.

PF, gratuity and the new 50% wage rule

The four labour codes came into force on 21 November 2025. One change matters for every salary structure: the definition of "wages".

Under the Code on Wages, allowances like HRA and conveyance are excluded from wages, but only up to 50% of total pay. If those exclusions add up to more than half, the excess is added back to wages. Wages are the base for gratuity, and can be for PF.

What this means for you:

• A structure with a tiny basic pay and a huge special allowance no longer keeps PF and gratuity low.
• If you calculate PF on actual wages, a higher wage base raises both employer and employee PF. That moves money from in-hand pay to the PF account inside the same CTC.
• Gratuity is now worked out on this wider wage. The usual provision is 4.81% of wages a year (15 days' wages for 26 working days, divided by 12 months).

Central and state rules under the codes are still being finalised, so check how your payroll provider applies them.

Old vs new tax regime for salaried employees

From 1 April 2026 the Income-tax Act, 2025 replaced the 1961 Act, and "tax year" replaced "financial year" and "assessment year". The new regime's slabs did not change for 2026-27:

Salaried people get a ₹75,000 standard deduction in the new regime, and a rebate makes taxable income up to ₹12 lakh effectively tax-free. Add 4% health and education cess to any tax due.

The old regime still allows HRA exemption, 80C investments and other deductions, with a ₹50,000 standard deduction. It only wins for people with large rent and investment claims. Most of your hires will pick the new regime, so build your offer maths on it and mention the option.

A worked example at ₹12 lakh CTC

Here is a common structure for a ₹12 lakh CTC (₹1,00,000 a month), with PF on the ₹15,000 cap.

Basic pay is just over 50% of gross, so the 50% rule doesn't add anything back.

Now the deductions:

Why is tax nil? Annual gross is ₹11,50,692. Minus the ₹75,000 standard deduction, taxable income is ₹10,75,692, which is under ₹12 lakh, so the rebate covers the tax.

And at ₹18 lakh

At ₹1,50,000 a month CTC, with basic at ₹72,000, employer PF of ₹1,800 and gratuity of ₹3,463, gross is ₹1,44,737 a month (₹17,36,844 a year). Taxable income after the standard deduction is ₹16,61,844. Tax works out to ₹1,32,369, plus 4% cess, so ₹1,37,664 a year, or about ₹11,472 a month.

In-hand: ₹1,44,737 minus ₹1,800 PF, ₹200 professional tax and ₹11,472 TDS is about ₹1,31,265 a month. That's roughly 87.5% of monthly CTC.

How to show it in the offer letter

A candidate should be able to see three numbers without a calculator.

• Annual CTC, with the fixed and variable parts split.
• Monthly gross salary.
• Estimated monthly in-hand under the new regime, with a line saying it depends on their tax choice and declarations.

Then attach a one-page breakup: every component, employer PF, gratuity provision, and what's variable and when it's paid. If there are ESOPs, show them separately and never add them to CTC. Our ESOP guide explains why.

Common mistakes

• Quoting CTC as if it were salary. Candidates hear "₹12 lakh" and expect ₹1 lakh a month.
• Hiding the gratuity provision inside CTC without saying so. It is only paid at exit, if the service condition is met.
• Including variable pay as if it were guaranteed. Show it separately, with how it's earned.
• Keeping an old structure built to dodge PF. The 50% rule now adds excess allowances back.
• Forgetting professional tax. Small, but candidates notice it on the first payslip.

Questions people ask

What is the difference between CTC and in-hand salary?

CTC is everything the company spends on you in a year, including employer PF and gratuity. In-hand salary is what reaches your bank account each month after employee PF, professional tax and income tax (TDS) are taken out. How big the gap is depends on the salary, its structure and the tax regime.

How much is in-hand on a ₹12 lakh CTC?

With a typical structure, employer PF on the ₹15,000 cap and the new tax regime, in-hand is about ₹93,900 a month. Income tax is nil because taxable income stays under ₹12 lakh after the ₹75,000 standard deduction, so the rebate covers it. Your structure may differ.

Does the new labour code change my in-hand salary?

It can. Since 21 November 2025, wages for PF and gratuity must be at least 50% of total pay, with excess allowances added back. If your company calculates PF on actual wages, a higher wage base means more PF and gratuity, which can lower in-hand pay inside the same CTC.

Is gratuity part of CTC?

Many Indian companies include a gratuity provision in CTC, usually 4.81% of basic pay. You don't receive it monthly. It is paid when you leave, if you meet the service condition: five years for permanent staff, or one year for fixed-term staff under the new labour codes.

Sources

• Income Tax Department: Taxation of ESOPs and salary perquisites (opens in a new tab)
• Tax2win: Income tax changes from April 2026 (opens in a new tab)
• KPMG India: Implementation of the labour codes (opens in a new tab)
• King Stubb & Kasiva: The 50% wage rule under the labour codes (opens in a new tab)
• Corpready: EPF and ESIC compliance guide (opens in a new tab)

This is general information, not legal or tax advice. Check with your CA or lawyer for your company's situation.