September 01, 2025
4 mins read
When you receive a job offer, the salary is usually mentioned in terms of Cost to Company (CTC). However, the actual amount you receive in your bank account every month, known as in-hand salary, is different from the CTC.
This difference often confuses, especially among new graduates or those switching careers. In-hand salary is calculated after subtracting various deductions and components from your total CTC.
CTC refers to the total amount a company would spend on an employee annually. It includes basic salary, allowances, bonuses, gratuity, PF contributions, and other benefits.
In-hand salary is the actual amount credited to your bank account after deductions like Provident Fund, Professional Tax, TDS, and others. It excludes indirect benefits, such as insurance premiums or training costs, which are part of the CTC.
Understanding salary-related terms is crucial as it helps break down the structure of compensation. Here are some key terminologies:
Basic Salary: The core component forming the foundation for other benefits like HRA and PF.
HRA (House Rent Allowance): Paid to employees to meet rental expenses, exempt under certain tax conditions.
Special Allowance: An adjustable portion added to meet the target CTC figure, often fully taxable.
PF (Provident Fund): A retirement benefit where both the employer and employee contribute a percentage of the basic pay.
Gratuity: A lump sum benefit paid upon completing 5 years with the employer.
Professional Tax: Deducted monthly as per state government rules, usually a nominal amount.
TDS (Tax Deducted at Source): Tax deducted by the employer before crediting the salary, based on applicable income slabs.
CTC includes both direct and indirect benefits. Here’s a breakdown:
Fixed Pay: Basic salary, HRA, and other fixed allowances.
Variable Pay: Performance-based bonuses and incentives.
Retirement Benefits: Employer contributions to PF, Gratuity.
Non-Monetary Benefits: Medical insurance, subsidised meals, training, etc.
Reimbursements: Travel or communication allowances if applicable.
All these factors add up to form the total CTC, but not all of them are part of the take-home salary.
Here’s a structured breakdown of how to calculate your in-hand salary from the CTC mentioned in your offer:
Step 1: Segregate the CTC into fixed components, variable pay, and non-cash benefits.
Step 2: Identify taxable elements, such as bonuses and special allowances. These are the components of your CTC that are subject to income tax, and understanding them is crucial for an accurate calculation of your in-hand salary.
Step 3: Deduct PF contribution, professional tax, and estimated income tax (TDS).
Step 4: Exclude non-cash benefits such as gratuity and insurance premiums. These are benefits that you receive from your employer but do not directly contribute to your monthly income, so they should be excluded from your in-hand salary calculation.
Step 5: Add monthly reimbursements (if any) that are directly paid.
Step 6: Divide the total annual take-home pay by 12 to calculate the monthly in-hand income.
This gives you a near-accurate view of what you’ll receive in your bank account.
A simplified example:
CTC: ₹6,00,000 annually
Basic Pay: ₹2,40,000
HRA: ₹96,000
Special Allowance: ₹1,44,000
PF (Employee + Employer): ₹57,600
Gratuity: ₹11,538
Tax & Other Deductions: ₹25,000 (approx.)
In-Hand Salary Estimate:
(₹6,00,000 − ₹57,600 − ₹11,538 − ₹25,000) / 12 = approx. ₹42,314 per month
Note: Exact figures vary based on your tax slab and company structure.
Knowing how to interpret and calculate your in-hand salary from the stated CTC is essential. It helps avoid misunderstandings, enables better financial planning, and allows you to evaluate job offers realistically.
Understanding deductions, tax obligations, and salary components is not just important; it's key to making informed decisions about your compensation. It puts you in the driver's seat of your financial planning.
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Break down the CTC into components, subtract deductions such as PF, PT, and TDS, and divide by 12 to get the monthly in-hand estimate.
Assuming minimal deductions, in-hand could be ₹10,000 to ₹11,000 per month. The exact figure depends on the company's structure, which includes its policies on benefits and deductions, as well as the tax laws applicable in your region.
After standard deductions, the monthly in-hand may range between ₹1.1 and ₹1.3 lakh. The final amount varies depending on the bonus structure and tax liability.
Identify taxable income, subtract PF and taxes, and divide the result by 12 to estimate the actual monthly salary received.
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