CTC vs Gross vs Net Salary in India: A Worked Example

The three terms, defined

Cost to company (CTC)

The total annual amount the employer commits for the employee: gross salary plus the employer’s own contributions (its share of PF with EDLI and administrative charges, and its share of ESI where applicable) and the gratuity provision. Some employers also add insurance premiums, food, transport and variable pay. CTC is a costing figure; nobody receives it.

Gross salary

The sum of the earnings on the payslip before anything is deducted: basic, HRA, special allowance and any other allowances. Gross is CTC minus the employer’s contributions and provisions. It is the figure ESI eligibility, professional tax slabs and income tax start from.

Net salary (take-home, in-hand)

Gross minus the employee’s own deductions: employee PF, employee ESI, professional tax and TDS, plus any loan recovery or loss of pay. This is the bank credit.

The worked example: ₹6,00,000 CTC in Mumbai

The assumptions match the CTC calculator on this site, so you can change any of them and see the result.

• Basic is 40% of CTC.
• HRA is 50% of basic, because Mumbai is a metro for HRA purposes (40% elsewhere).
• PF is restricted to the ₹15,000 wage ceiling: 12% from each side, with the employer also paying EDLI at 0.5% and administrative charges at 0.5%.
• Gratuity is provided at 4.81% of basic and counted in CTC.
• Professional tax is the Maharashtra slab: ₹200 a month for salaries above ₹10,000, and ₹300 in February.
• Tax is under the new regime for FY 2025-26, with the ₹75,000 standard deduction.
• No ESI, because gross is above ₹21,000. No variable pay.

How each line is worked out

Basic and HRA

Basic is the anchor: PF, gratuity and HRA are all percentages of it. At 40% of a ₹50,000 monthly CTC, basic is ₹20,000. HRA at 50% of basic is ₹10,000; in a non-metro it would be ₹8,000 and the special allowance ₹2,000 higher. The HRA exemption from tax exists only under the old regime.

Provident fund

Both sides contribute 12% of basic, restricted here to the ₹15,000 ceiling, so ₹1,800 each. The employer’s ₹1,800 is split ₹1,250 to the pension scheme (8.33%) and ₹550 to the provident fund (3.67%), and the employer also pays ₹75 of EDLI and ₹75 of administrative charges. The PF calculator shows the split and what the balance grows to. If the employer contributed on full basic, both contributions would be ₹2,400 and the net about ₹1,200 lower, because the extra employer cost also comes out of the same CTC.

Gratuity

Gratuity is payable under the Payment of Gratuity Act after five years of continuous service, at 15 days of last-drawn basic and dearness allowance for each completed year, computed as 15/26 of a month. Spread over twelve months, that is 4.81% of basic, and many employers show it in CTC as a provision. It is a real cost to the company, but it reaches the employee only after five years, and never if they leave before.

ESI

Not applicable here. ESI covers employees with gross up to ₹21,000 a month, at 0.75% from the employee and 3.25% from the employer. At a CTC of roughly ₹3 lakh or less it appears in the breakup, and the employer’s share sits inside the CTC as well.

Professional tax

Set by the state where the employee works. Maharashtra deducts ₹200 a month above ₹10,000 of monthly salary, and ₹300 in February, for ₹2,500 a year; women are exempt up to ₹25,000. The same employee in Delhi or Gurugram would pay nothing; in Bengaluru, ₹200 a month above ₹25,000. The state slabs list them all.

TDS

Annual gross is ₹5,65,056. Less the ₹75,000 standard deduction, taxable salary is ₹4,90,056. The slab computation gives roughly ₹4,500 (5% on the ₹90,056 above ₹4 lakh), and the section 87A rebate cancels it, because taxable income is within ₹12 lakh. The employer deducts nothing. Under the old regime, with HRA exemption and section 80C, the result at this income is also nil for most people.

Why the offer letter and the payslip differ

The offer letter states an annual CTC, and often lists the employer’s PF and gratuity as lines within it. The payslip states a month of gross and the deductions from it. So an offer of ₹6,00,000 becomes a payslip showing ₹47,088 earned and ₹45,088 paid, and a new joiner who divided six lakh by twelve expected ₹50,000. The joining month is prorated by days worked, which lowers the first payslip further.

Variable pay widens the gap. If ₹60,000 of the ₹6,00,000 is a performance bonus, fixed CTC is ₹5,40,000, the monthly figures above all shrink by a tenth, and the bonus arrives once a year, if the target is met, and is taxed in the month it is paid.

Common employer tricks in a CTC

• Variable pay inside CTC. A 10% to 30% component paid quarterly or annually against targets. Ask what share of employees received the full amount last year.
• Gratuity inside CTC. Legitimate as costing, but the employee sees nothing for five years. Ask for the fixed monthly gross instead.
• Employer PF inside CTC. Also legitimate, and universal. This money does reach the employee, in the PF account rather than the bank.
• Insurance, food and transport inside CTC. Group health premiums, subsidised meals and a bus pass are real benefits, but they are not salary, and they should be listed as such.
• Retention bonus and notice buyout. A joining or retention bonus that must be returned if the employee leaves within a year is a loan until then.

None of these is illegal, and most are standard. The problem is comparing two offers by CTC when one has 90% fixed pay and the other 70%. Compare monthly gross and, separately, what the employer contributes on your behalf.

For the employer, the same discipline avoids the payroll mistakes that follow from a structure nobody wrote down: a basic too low for PF, HRA at the wrong rate for the city, and a CTC promise the payslip cannot keep.