How a CTC breakup works
CTC (cost to company) is the full annual cost your employer carries for you. It is built in layers. Some layers reach your bank account, some do not. Reading the layers is the key to understanding why your in hand is far below your CTC.
The earnings side (gross salary)
- Basic salary: usually 40 to 50 percent of CTC. It drives PF, gratuity and HRA.
- HRA: commonly 50 percent of basic in metro cities, 40 percent elsewhere.
- Special allowance: the balancing figure that makes the structure add up. Fully taxable.
The employer cost side
- Employer PF: 12 percent of basic, often capped at 12 percent of the wage ceiling. The EPFO ceiling rose from 15,000 to 25,000 a month on 17 September 2026, so the capped figure is now 3,000 per month.
- Gratuity provision: about 4.81 percent of basic per year, set aside but paid only after five years of service (one year for fixed-term employees under the Code on Social Security, 2020).
- Some firms also load insurance premium or a variable bonus into CTC.
From CTC to take home
Three deductions sit between your gross salary and your in hand pay each month. For a fuller CTC to in-hand view with old regime deductions, use the in-hand salary calculator.
| Step | What happens |
|---|---|
| Employer PF and gratuity | Removed from CTC to get gross salary. These are employer costs you do not receive monthly. |
| Your PF (12% of basic) | Deducted from gross and parked in your EPF account, often capped at 3,000 per month (12% of the 25,000 wage ceiling). |
| Professional tax | A small state levy, up to 2,500 per year. Many states charge about 200 per month. |
| Income tax (TDS) | Withheld monthly based on your projected annual tax. This tool estimates it under the new regime for tax year 2026-27. |
Worked example: 12 lakh CTC
CTC 12,00,000, basic at 50 percent, metro HRA, employer PF capped at the 25,000 wage ceiling (3,000 per month), gratuity included, professional tax 200 per month.
| Component | Per year |
|---|---|
| Basic (50% of CTC) | ₹6,00,000 |
| HRA (50% of basic) | ₹3,00,000 |
| Special allowance (balancing) | ₹2,35,140 |
| Gross salary | ₹11,35,140 |
| Employer PF (capped) | ₹36,000 |
| Gratuity provision (4.81% of basic) | ₹28,860 |
| Total CTC | ₹12,00,000 |
Take home: gross 11,35,140 minus your PF (36,000) minus professional tax (2,400) minus new regime income tax (nil, because taxable income of 10,60,140 is under 12 lakh) gives 10,96,740 a year, or about 91,395 a month. Small rounding differences are normal because PF caps and gratuity do not divide evenly into the CTC.
Related tools
- New wage code salary calculator: see how the 50% wages rule changes PF and gratuity.
- Employee cost calculator: add ESI, bonus, insurance and overheads to get the full cost of a hire.
- Gratuity calculator: estimate the gratuity payout on exit.
- HRA exemption calculator: check how much of the HRA line is tax free under the old regime.
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Sources
Frequently asked questions
What is the difference between CTC, gross salary and take home?
CTC is everything the employer spends on you in a year, including the employer PF contribution and gratuity provision that you never see monthly. Gross salary is CTC minus those employer contributions. Take home is gross minus your own PF, professional tax and income tax. So take home is always lower than CTC.
How is basic salary decided in a CTC breakup?
Basic is usually set as a percentage of CTC, historically 40 to 50 percent. Under the new Labour Codes, wages (basic plus DA) should be at least 50 percent of total pay, so many employers are moving basic towards 50 percent. A higher basic raises PF and gratuity and can lower take home, while improving retirement savings.
How much HRA is part of CTC?
HRA is commonly 50 percent of basic for metro cities and 40 percent elsewhere. For the HRA tax exemption, the 50 percent cities from tax year 2026-27 are Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. It is a structural choice, not a fixed legal figure. How much HRA is tax free is a separate calculation (Section 10(13A) of the 1961 Act, carried into the Income-tax Act, 2025) and applies only in the old tax regime.
Is gratuity part of CTC?
Many employers add a gratuity provision to CTC at about 4.81 percent of basic per year, which comes from 15 divided by 26 days of basic spread over 12 months. You actually receive gratuity only after five years of continuous service (one year for fixed-term employees under the Code on Social Security, 2020), so it sits in CTC long before it reaches you.
Why is my take home much lower than my CTC?
Employer PF and gratuity are in CTC but not paid to you monthly, your own 12 percent PF and professional tax are deducted, and income tax is withheld. Together these can take a large slice, especially at higher salaries, which is why CTC and in hand differ so much.
Does this calculator use the new or old tax regime?
The take home estimate uses the new tax regime for tax year 2026-27 with the 75,000 standard deduction and the Section 156 rebate (earlier Section 87A) that makes taxable income up to 12 lakh tax free. It does not apply old regime deductions like 80C or HRA exemption. For a detailed comparison, use the GetHirePlus income tax calculator.
Conventions and rules checked October 2026, including the EPFO wage ceiling change of 17 September 2026. Salary structures vary by employer, so treat the split as a well informed estimate. Spotted a wrong value? Tell us at [email protected] and we will fix it fast.
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