Your offer letter says "₹10 LPA CTC". Divide by 12 and you get ₹83,333. Your first salary credit will be noticeably lower than that, and nothing has gone wrong. CTC and in-hand salary measure two different things.
- CTC (Cost to Company) is what the employer expects to spend on you in a year.
- In-hand (net) salary is what actually reaches your bank account each month.
This guide explains each layer between the two and walks through a complete ₹10 LPA example using the rules that apply in FY 2026-27 (called "tax year 2026-27" under the new Income-tax Act, 2025).
The three numbers on (or behind) your offer letter
| Term | What it means | Who controls it |
|---|---|---|
| CTC | Everything the company spends on you: fixed pay, employer PF, gratuity provision, insurance, variable pay, sometimes perks | Company's salary policy |
| Gross salary | CTC minus the employer's retirement contributions, insurance premiums and non-cash perks. This is the cash salary before deductions | Company's salary structure |
| In-hand salary | Gross salary minus your own PF, professional tax and income tax (TDS) | Law + your tax regime choice |
What usually sits inside CTC
- Fixed cash pay: Basic, HRA, special allowance, other allowances.
- Employer's PF contribution: 12% of your PF wages, paid into your EPF/EPS account, not to your bank. Some companies also include small EDLI insurance and PF admin charges here.
- Gratuity provision: Commonly 4.81% of Basic. You receive it only if you meet the eligibility rules (explained below).
- Insurance premiums: Group health or term insurance the company buys for you.
- Variable pay / bonus: Paid only if performance targets are met. Not guaranteed.
- One-time items: Joining bonus, relocation. Some companies add these to "first-year CTC", which makes year two look like a pay cut.
Always ask HR for the full annual breakup before you accept. Two offers with the same CTC can produce very different monthly pay.
The deductions between CTC and in-hand
1. Provident Fund (EPF)
Both you and your employer contribute 12% of your "PF wages" (Basic + DA for most people). Your 12% is deducted from your salary. The employer's 12% is part of CTC but goes to your PF account.
There is an important choice companies make here:
- PF on the wage ceiling: The statutory wage ceiling was raised from ₹15,000 to ₹25,000 per month from 17 September 2026. Many employers calculate mandatory PF only up to this ceiling, so the contribution is 12% of ₹25,000 = ₹3,000 a month each (it was ₹1,800 on the old ₹15,000 ceiling).
- PF on full Basic: Other employers (common in large IT firms) calculate 12% on your entire Basic. Contribution above the ceiling is voluntary for both sides, as the Labour Ministry clarified in December 2025, but many companies still do it by policy.
PF is your money. It earns interest (8.25% for 2025-26) and builds retirement savings. But it does reduce monthly cash flow.
2. Gratuity
Gratuity is a lump sum the employer pays when you leave, retire or in case of death or disablement. Under the Code on Social Security, 2020 (in force since 21 November 2025), a permanent employee normally becomes eligible after five years of continuous service. Fixed-term employees now become eligible after one year.
Including gratuity in CTC is a company choice, not a legal requirement. Some employers show it in CTC, many do not. If you leave before becoming eligible, you never receive that part. When you compare offers, remove gratuity from both CTCs so you compare like with like.
3. Professional Tax (PT)
A state tax on employment, capped at ₹2,500 a year by Article 276 of the Constitution. Karnataka and Maharashtra charge ₹200 a month and ₹300 in February (₹2,500 a year) above their salary thresholds. Delhi, Haryana, Uttar Pradesh and Rajasthan do not levy it.
4. Income tax (TDS)
Your employer estimates your annual tax and deducts it monthly. Under the new tax regime (the default) for FY 2026-27:
- Salaried people get a ₹75,000 standard deduction.
- If taxable income is ₹12,00,000 or less, a rebate (Section 87A of the old Act, Section 156 of the Income-tax Act, 2025) cancels the tax completely.
So if your only income is salary, gross taxable salary up to ₹12,75,000 means zero income tax under the new regime. Most fresher packages fall in this range. Above it, tax applies at slab rates (see our New Tax Regime guide).
Want to plug in your own offer? Use JobYaar's free In-Hand Salary Calculator. Our Methodology page explains the assumptions it uses.
Worked example: ₹10 LPA CTC in Bengaluru
Assumptions (state yours clearly when you do this for your own offer):
- CTC ₹10,00,000, all fixed. No variable pay, no insurance premium, no joining bonus in CTC.
- Basic = ₹4,50,000 a year (₹37,500 a month).
- Gratuity provision included in CTC at 4.81% of Basic.
- Employee works in Karnataka (PT ₹2,500 a year).
- New tax regime, no other income.
- PF calculated on current rules for the whole year (₹25,000 ceiling) to keep the example simple. In FY 2026-27 itself, April to mid-September would have used the old ₹15,000 ceiling.
We show both PF approaches side by side.
| Line item (annual) | PF on ₹25,000 ceiling | PF on full Basic |
|---|---|---|
| CTC | ₹10,00,000 | ₹10,00,000 |
| Less employer PF (12%) | − ₹36,000 | − ₹54,000 |
| Less gratuity (4.81% of Basic) | − ₹21,645 | − ₹21,645 |
| Gross salary | ₹9,42,355 | ₹9,24,355 |
| Less standard deduction (for tax only) | ₹75,000 | ₹75,000 |
| Taxable income | ₹8,67,355 | ₹8,49,355 |
| Income tax after 87A rebate | ₹0 | ₹0 |
| Less employee PF (12%) | − ₹36,000 | − ₹54,000 |
| Less professional tax | − ₹2,500 | − ₹2,500 |
| Annual in-hand | ₹9,03,855 | ₹8,67,855 |
| Monthly in-hand (approx.) | ₹75,321 | ₹72,321 |
Notes on the table:
- The standard deduction is not cash taken from you. It only lowers taxable income.
- Monthly in-hand will be about ₹100 lower in February because PT is ₹300 that month.
- In the "full Basic" column, you take home ₹3,000 less each month, but ₹36,000 more goes into your PF every year (your ₹18,000 plus the employer's extra ₹18,000).
- If the company also included, say, ₹10,000 of health insurance and ₹1,00,000 of variable pay in the same ₹10 LPA CTC, fixed monthly in-hand would fall by roughly ₹9,000 more.
Bottom line: For this offer, in-hand is roughly ₹72,000 to ₹75,000 a month, not ₹83,333. The gap is entirely PF, gratuity and PT. There is no income tax at this level.
A note on the Labour Codes and salary structure
The four Labour Codes came into force on 21 November 2025. Under the new definition of "wages", if allowances (everything other than Basic, DA and retaining allowance) exceed 50% of total pay, the excess is added back to wages for calculating things like gratuity. Many employers have responded by keeping Basic around 50% of pay. A higher Basic can mean higher PF and gratuity, and so slightly lower monthly cash, though the government has said the codes should not reduce take-home pay. If your offer letter shows an unusually low Basic, ask HR how they apply this rule.
Checklist before you accept an offer
- Get the annual and monthly breakup, not just the CTC.
- Ask whether PF is on full Basic or the wage ceiling.
- Ask whether gratuity, insurance and variable pay are inside the CTC.
- Check if any joining bonus has a clawback if you leave within a year.
- Calculate in-hand yourself with the In-Hand Salary Calculator and compare offers on in-hand plus PF, not on CTC.
Getting the offer starts with getting shortlisted. Check your ATS score with JobYaar's Resume Checker before you apply.
FAQ
Why do some companies include gratuity in CTC if I might not get it?
It is a policy choice. Gratuity is a real cost the company provides for in its books, so some employers show it in CTC; others leave it out. There is no law requiring it to be in CTC. If you are comparing two offers, subtract gratuity from both so the comparison is fair.
Will I pay income tax on a ₹10 LPA CTC as a fresher?
Usually not, if salary is your only income and you are in the new tax regime. After removing employer PF and gratuity, gross salary is typically well under ₹12.75 lakh, so taxable income stays under ₹12 lakh after the ₹75,000 standard deduction and the rebate makes tax nil.
Should I choose the old or new tax regime as a fresher?
Most freshers without big deductions (home loan interest, large rent, ₹1.5 lakh of 80C investments) pay less under the new regime. Compare both with your own numbers first. Our New Tax Regime guide has a side-by-side table.
Is variable pay part of my monthly in-hand?
No. Variable pay is usually paid quarterly or yearly and depends on company and individual performance. Budget on fixed pay only.
Last reviewed: October 2026. This guide is for general information, not tax or financial advice. Rules change; confirm with your employer's payroll team or a chartered accountant before making decisions.