How to calculate in-hand salary from CTC


The difference between CTC and in-hand salary is what causes much distress to both new and old employees. This blog breaks down the terms, heads, and categories, making it easier to compute in-hand salary from CTC. 

Have you ever experienced the sudden shock when the amount of salary credited in your account is lower than what you thought was in the offer letter? That is exactly what happens to employees, especially first-timers, when dealing with the complexities of jargon such as statutory, gross, net, bonus, deductions, and taxable components. If these are terms that have troubled you in the past or continue to do so, the following article will help you simplify the CTC in your offer letter and accurately calculate your in-hand salary. Read on!

What is the difference between CTC and in-hand salary? 

The amount of money that a company or firm spends to hire and/or retain employees is the Cost to Company (CTC). This includes all the aspects of the total package that the company gives to each employee. In contrast, the in-hand salary is what the employee gets once the company has subtracted all the necessary deductions. 

Learning the lingo for easy understanding

The simplest way of navigating this tricky terrain is to understand the associated terms, such as: 

  • Gross salary: Once the Employees' Provident Fund and the gratuity have been deducted from the CTC, we arrive at the gross salary. This can also include overtime income, paid holidays and bonuses before any deductions from income tax, professional tax, and other deductions.
  • Gratuity: The compensation that an employer gives to staff for long-term services rendered is called gratuity. Employees are eligible to get this payment if they served at least five years in the company. It is paid to when the employee resigns or retires from the company. It can be calculated using a simple online calculator
  • Basic salary: This is the fixed/base salary an employee receives irrespective of performance. The basic salary determines the value of other components such as deductions and allowances.
  • Conveyance: This is the fixed allowance that the employee gets for any costs incurred for travelling to and from the office.
  • House rent allowance: Employees also receive allowances to compensate them for expenses that they incur in renting a place to stay. The allowance becomes taxable for those who do not rent a place. 
  • Medical expenses: The CTC of a company includes medical expenses. This comprises expenditure incurred for medical treatment and insurance policies. Companies usually extend the inclusion to immediate and dependent family members. 
  • Leave travel allowance: Reimbursement for expenses incurred for travel during paid leaves is called leave travel allowance. This component becomes non-taxable when supporting documents are submitted. 
  • Special allowances: This refers to parts of the salary that are not included in any other category.
  • Professional tax: The firm pays a professional tax to the government on behalf of the employee. This is a direct tax.
  • EPF: Every month, the employee and the company contribute equal amounts to the EPF (employee provident fund). This is calculated as 12% of the basic salary according to Section 80C of the IT Act of 1961. It’s also worth noting that the employee’s contribution to EPD is tax deductible. But keep in mind, the upper limit for monthly EPF contributions is INR 15,000/-.
  • Dearness allowance: This usually pertains to the allowance given to government employees. The rate is calculated by adjusting for inflation. 

How to calculate in-hand salary:

Let us consider Rima, an employee in an IT firm in Mumbai, India. Here is a breakdown of their salary components:

  1. Basic Salary: INR 50,000
  2. House Rent Allowance (HRA): INR 20,000
  3. Special Allowance: INR 5,000
  4. Transport Allowance: INR 2,000
  5. Medical Allowance: INR 1,500

Rima can calculate their salary as follows:

Gross Salary = Basic + HRA + Special Allowance + Transport Allowance + Medical Allowance

Gross Salary = INR 50,000 + INR 20,000 + INR 5,000 + INR 2,000 + INR 1,500 = INR 78,500

Now, let us consider the deductions:

  1. Provident Fund (PF) (12% of Basic): INR 6,000 (12% of INR 50,000)
  2. Professional Tax (PT): INR 200 
  3. Income Tax (TDS): INR 5,000 (This is a hypothetical value; their actual TDS will depend on several factors like their investment declarations, exemptions, etc.)

Total Deductions = PF + PT + TDS

Total Deductions = INR 6,000 + INR 200 + INR 5,000 = INR 11,200

In-Hand Salary = Gross Salary - Total Deductions

In-Hand Salary = INR 78,500 - INR 11,200 = INR 67,300

As a result, Rima receives INR 67,300 as in-hand salary.

Other considerations

In addition to the standard heads and categories, an employee must keep in mind the following details to have a clear idea of how to compute income and taxes:

  • Access to Form 16: Employers provide this document to the employee and includes details the salary earned, the amount deducted and paid as tax, as well as other details. Further, it is also essential when filing taxes as it the proof of TDS payments made by the employer to the income tax department.
  • New tax regime: The Union Budget of 2022 introduced the New Tax Regime. It can be opted into by taxpayers who wish to avail a flat lower tax rate instead of leveraging various deduction opportunities under the Income Tax Act of 1961.


While the CTC represents the total cost an employer incurs for an employee, the in-hand salary is the actual amount you receive after all deductions. By familiarizing yourself with the various components of your salary and the deductions applicable, you can ensure that there are no surprises when you check your bank account at the end of the month. 

Remember, knowledge is power. Being informed about your earnings and deductions empowers you to make smarter financial choices. So, the next time you receive an offer letter or evaluate your salary slip, you'll be well-equipped to decode the numbers and truly understand your earnings. Happy budgeting!


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