How CTC turns into in-hand salary
Cost to Company (CTC) is everything your employer spends on you in a year, not what reaches your bank account. Part of it never becomes salary: the employer's PF contribution goes to your EPF account, and gratuity is budgeted as a retirement benefit rather than monthly cash pay. What remains is your gross salary.
From gross salary, three things are deducted before you are paid: your own PF contribution (usually 12% of basic), professional tax (up to ₹2,500 a year) and income tax deducted at source (TDS). What is left is your in-hand pay. The breakdown table shows each step.
Worked example: ₹15 lakh CTC
Take a CTC of ₹15,00,000 with basic at 40% (₹6,00,000 a year), PF at 12% of basic and gratuity inside CTC. Employer PF is ₹72,000 and gratuity is 4.81% of basic, ₹28,860. That leaves a gross salary of ₹13,99,140.
New regime: subtract the ₹75,000 standard deduction to get taxable income of ₹13,24,140. Tax on the slabs plus 4% cess is ₹81,766. After employee PF (₹72,000) and professional tax (₹2,500), you take home ₹12,42,874 a year, or about ₹1,03,573 a month.
Old regime: with an HRA exemption of ₹1,20,000, ₹50,000 of 80C investments on top of EPF and ₹25,000 of health insurance, taxable income is ₹10,79,640 and tax is ₹1,41,848. In-hand pay is ₹11,82,792 a year (₹98,566 a month), so the new regime is better by ₹60,082 a year.
The old regime can still win if your deductions are large. With an HRA exemption of ₹3,00,000, full 80C, ₹75,000 under 80D and ₹2,00,000 of home-loan interest, the same CTC gives ₹1,07,195 a month under the old regime, ₹43,465 a year more than the new one.
FY 2026-27 tax slabs used
New regime (the default; Section 202 of the Income-tax Act 2025, previously 115BAC): nil up to ₹4 lakh, 5% for ₹4–8 lakh, 10% for ₹8–12 lakh, 15% for ₹12–16 lakh, 20% for ₹16–20 lakh, 25% for ₹20–24 lakh and 30% above ₹24 lakh. Salaried people get a ₹75,000 standard deduction. A rebate of up to ₹60,000 (Section 156, previously 87A) makes tax nil when taxable income is ₹12 lakh or less, which is why a salary of ₹12.75 lakh is tax-free.
Just above ₹12 lakh, marginal relief limits your tax to the income above ₹12 lakh. At ₹12.5 lakh taxable, slab tax is ₹67,500 but you pay only ₹50,000 plus cess (₹52,000 in all). The relief runs out at about ₹12.7 lakh; at ₹13 lakh tax is ₹78,000.
Old regime (below 60): nil up to ₹2.5 lakh, 5% up to ₹5 lakh, 20% up to ₹10 lakh and 30% above. The basic exemption is ₹3 lakh at 60–79 and ₹5 lakh at 80+. The standard deduction is ₹50,000, professional tax is deductible, and a rebate of up to ₹12,500 applies up to ₹5 lakh, with no marginal relief.
Both regimes add a 4% health and education cess. Surcharge is 10% above ₹50 lakh, 15% above ₹1 crore and 25% above ₹2 crore; the old regime adds 37% above ₹5 crore. The calculator applies marginal relief on surcharge too.
PF, gratuity and professional tax
PF: you and your employer each contribute 12% of basic (plus DA). Many employers instead cap PF at the statutory wage ceiling of ₹15,000 a month, so each side pays ₹1,800 a month. In the example, the ceiling lifts new-regime in-hand pay to ₹1,11,318 a month, but you save less for retirement. Employer contributions to EPF, NPS and superannuation are tax-free up to ₹7.5 lakh a year in total.
Gratuity is often shown in CTC at 4.81% of basic (15 days' wages for each year, with a month taken as 26 days: 15 ÷ 26 ÷ 12). Regular employees generally qualify after five years; exceptions include death or disablement, and fixed-term employees can qualify after one year under the Labour Codes. If your offer letter keeps it outside CTC, untick that box.
Professional tax is charged by some states, typically ₹200 a month (Maharashtra charges ₹300 in February to reach ₹2,500). It is deductible only in the old regime.
Which regime should you choose?
The result depends on your salary, age and eligible deductions. The new regime has lower slabs and the ₹12 lakh rebate; substantial eligible deductions can make the old regime better. Enter your real figures, then tell your employer your choice so the right TDS is deducted.
Once you know your monthly surplus, see how it could grow in a PPF calculator, and check what a raise is really worth with the inflation calculator.
Sources
Tax slabs, rebate and surcharge: Finance Bill 2026 (India Budget); KPMG Union Budget 2026-27 highlights; Economic Times on FY 2026-27 slabs; Taxguru on Section 156 (formerly 87A). PF rules: EPFO.
Assumptions & limits
This is an estimate for a resident private-sector employee whose only income is salary, with no DA modelled separately. Employer NPS limits are 14% of basic in the new regime and 10% in the old; government employees have a different old-regime limit. It does not include bonuses, variable pay, perquisites, reimbursements, interest or capital gains. Gross salary is treated as fully taxable apart from the deductions you enter; HRA exemption is taken as the figure you type (it is the least of actual HRA, rent minus 10% of basic, and 50% or 40% of basic). Employee NPS, the accrual of interest on employer contributions above ₹7.5 lakh, and rounding of taxable income to the nearest ₹10 are ignored; tax is rounded to the rupee.
The new Labour Codes (in force from 21 November 2025) require certain excluded allowances above 50% of remuneration to be added back to statutory wages, which may change the base for PF and gratuity. This does not mean contractual basic salary must always be 50% of CTC. Employers are still adjusting, so follow your own salary slip. Tax rules change each year: verify the slabs before making decisions, and treat this as a planning aid, not tax advice.