Most "in-hand salary formulas" online mix up two separate calculations: the cash calculation (what leaves your salary) and the tax calculation (what income tax is charged on). Keeping them apart is the key to getting the right number.
This guide gives you a four-step method for FY 2026-27 (tax year 2026-27 under the Income-tax Act, 2025), with two worked examples. If you would rather not do it by hand, the In-Hand Salary Calculator follows the same logic, described on our Methodology page.
What you need before you start
From your offer letter or HR, collect:
- Annual CTC and its breakup
- Annual Basic (and DA, if any)
- Whether PF is on full Basic or only on the statutory wage ceiling
- Whether gratuity, insurance and variable pay are inside CTC
- Your work state (for professional tax)
- Your tax regime (new is the default)
Step 1: Convert CTC to gross salary
Remove everything in CTC that is not paid to you as salary:
Gross salary = CTC − employer PF − gratuity provision − insurance premiums − variable pay (if you want fixed pay only)
- Employer PF: 12% of PF wages. The statutory wage ceiling is ₹25,000 a month from 17 September 2026 (earlier ₹15,000). If your employer contributes only on the ceiling, employer PF is ₹3,000 a month. If it contributes on full Basic, it is 12% of Basic.
- Gratuity: Usually provided at 4.81% of Basic (15/26 of one month's Basic, spread over 12 months). Not every company includes it in CTC.
Step 2: Work out taxable income (this is where most guides go wrong)
Taxable income is not "gross minus your PF and PT" under the new regime. Each regime allows different deductions.
New tax regime (default)
Taxable income = Gross salary − ₹75,000 standard deduction − employer NPS contribution (if any, up to 14% of Basic + DA)
Your own PF contribution and professional tax are not deductible in the new regime. HRA exemption, 80C and 80D are also not available.
Old tax regime (only if you opt for it)
Taxable income = Gross salary − exempt HRA − ₹50,000 standard deduction − professional tax − Chapter VI-A deductions (80C up to ₹1.5 lakh, which includes your own EPF, 80D, 80CCD(1B), etc.)
Under the new Act these sections are renumbered (for example, 80C is now Section 123 and the new regime is Section 202), but the limits are substantially the same.
Step 3: Calculate annual income tax
New regime slabs for FY 2026-27 (unchanged by Budget 2026):
| Taxable income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Then:
- If taxable income is ₹12,00,000 or less, the rebate makes tax zero.
- If it is just above ₹12 lakh, marginal relief limits tax to the amount by which income exceeds ₹12 lakh.
- Add 4% health and education cess to any tax left.
Your employer divides the annual figure across the remaining months of the year and deducts it as TDS. TDS can change mid-year if your salary or declarations change.
Step 4: Subtract your own deductions from gross pay
Annual in-hand = Gross salary − employee PF − professional tax − income tax (TDS)
Monthly in-hand ≈ Annual in-hand ÷ 12
Notice that employee PF and PT are subtracted here, from cash, in both regimes. They just do not reduce taxable income in the new regime.
Worked example 1: ₹8 LPA in Hyderabad (no tax)
Assumptions: CTC ₹8,00,000, all fixed. Basic ₹30,000 a month (₹3,60,000 a year). Employer contributes PF on full Basic. Gratuity included in CTC. No insurance or variable pay. Telangana PT ₹200 a month. New regime, no other income.
Step 1: Gross salary
- CTC: ₹8,00,000
- Less employer PF (12% × ₹3,60,000): ₹43,200
- Less gratuity (4.81% × ₹3,60,000): ₹17,316
- Gross salary: ₹7,39,484
Step 2: Taxable income (new regime)
- ₹7,39,484 − ₹75,000 = ₹6,64,484
Step 3: Tax
- Taxable income is below ₹12,00,000, so tax after rebate = ₹0. TDS = ₹0.
Step 4: In-hand
- Gross: ₹7,39,484
- Less employee PF: ₹43,200
- Less PT (₹200 × 12): ₹2,400
- Less TDS: ₹0
- Annual in-hand: ₹6,93,884
- Monthly in-hand: about ₹57,824
If this employer limited PF to the ₹25,000 ceiling instead, both PF amounts would be ₹36,000 a year, and monthly in-hand would rise to about ₹59,024 (gross rises by ₹7,200 and your own PF falls by ₹7,200).
Worked example 2: when tax does apply
Say your gross salary is ₹15,75,000 and you are in the new regime with no employer NPS.
- Taxable income: ₹15,75,000 − ₹75,000 = ₹15,00,000
- Tax: 5% of ₹4,00,000 (₹20,000) + 10% of ₹4,00,000 (₹40,000) + 15% of ₹3,00,000 (₹45,000) = ₹1,05,000
- Rebate: not available (income above ₹12 lakh, and well past the marginal relief range)
- Cess at 4%: ₹4,200
- Total tax: ₹1,09,200, or about ₹9,100 TDS a month
Common mistakes to avoid
- Dividing CTC by 12. It ignores employer PF, gratuity and variable pay.
- Deducting your PF and PT before tax in the new regime. It understates your taxable income. (At fresher salaries it rarely changes the answer because of the rebate, but it matters above ₹12.75 lakh gross.)
- Assuming variable pay is monthly. It is usually paid quarterly or yearly and is not guaranteed.
- Forgetting the February PT bump. States such as Maharashtra and Karnataka deduct ₹300 in February to reach the ₹2,500 annual cap.
Before you apply for your next role, check your ATS score with JobYaar's Resume Checker.
FAQ
What happens if I do not tell HR which tax regime I want?
The new regime is the default. Under CBDT's instructions, if you do not inform your employer, TDS is calculated under the new regime. If you have no business income, you can still choose the old regime for that year when you file your income tax return, but your monthly TDS will not reflect it.
Is HRA taxable?
In the new regime, HRA is fully taxable. In the old regime, part of it can be exempt if you pay rent and submit proof; the exempt amount is the lowest of three limits based on actual HRA, rent paid and your Basic.
Can I opt out of PF to increase in-hand pay?
Only in a narrow case. You can opt out (as an "excluded employee", declared in Form 11 when you join) only if you have never been an EPF member before and your PF wages exceed the statutory ceiling at the time of joining. That ceiling is ₹25,000 a month from 17 September 2026 (₹15,000 before that). Once you have contributed to EPF, including at a previous job, you cannot opt out at a new employer. Many employers also make PF compulsory by policy. Confirm with HR.
Does joining bonus count in in-hand?
It is paid once (often with the first or second salary) and is taxable in the year you receive it. Do not include it in your regular monthly budget.
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.