An offer of "₹12 lakh CTC" does not mean ₹1 lakh lands in your bank account every month. Cost to company (CTC) is everything the employer spends on you in a year, including money you only receive later or under certain conditions. Here is how to read the numbers.
Three numbers to know
- CTC (cost to company): the total annual cost of employing you, including employer contributions and benefits.
- Gross salary: what you earn before deductions, roughly CTC minus employer-side items such as the employer's provident fund contribution and gratuity.
- In-hand (net) salary: what reaches your bank account each month after deductions.
Common components of CTC
- Basic pay: the fixed core of your salary. Many other items are calculated from it.
- House rent allowance (HRA): may reduce your tax if you pay rent, depending on the tax regime you choose.
- Special or flexible allowance: the balancing figure that makes up the rest of fixed pay.
- Employer's provident fund (PF): usually 12% of basic pay, paid into your PF account. It is part of CTC but not part of your monthly pay.
- Gratuity: a lump sum paid when you leave after qualifying service. Employers often include their estimated yearly cost in CTC.
- Variable pay or bonus: paid only if you and the company meet targets, often once or twice a year. Ask what percentage was actually paid last year.
- One-time items: joining bonus, relocation and stock awards (ESOPs or RSUs). These may come with conditions, such as repaying a joining bonus if you leave within a year.
What is deducted every month
- Your own PF contribution, usually 12% of basic pay.
- Professional tax in states that levy it; it is a small amount.
- Income tax (TDS) deducted by your employer based on the tax regime you choose and your declared investments.
- Sometimes health insurance top-ups, meal cards or other deductions you opt into.
What changed with the new labour codes
India's four labour codes came into force on 21 November 2025. They define "wages" so that basic pay and similar components must make up at least half of total pay. If your allowances were large and your basic pay small, your employer may restructure your salary. A higher wage base usually means larger PF and gratuity amounts, and sometimes slightly lower monthly take-home pay. The codes also let fixed-term employees qualify for pro-rata gratuity after one year of service, while permanent employees still need five years.
Questions to ask before you accept
- What will my in-hand salary be each month in the first year?
- How much of the CTC is variable, and how was it paid out last year?
- Are there one-time components, and do any have a clawback period?
- When do stock awards vest, and what happens to them if I leave?
- What health insurance covers me and my family, and is it included in CTC?
Tax rules change regularly, so check the current slabs and regimes on the Income Tax Department's website or with a qualified adviser. This guide is general information, not financial advice.
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