How to Calculate In-Hand Salary from CTC (2025 Guide)
Table of Contents
For employees, a high cost-to-company (CTC) does not always mean a large amount as salary. The journey from CTC to in-hand salary involves calculating various taxes and deductions. Employers face certain challenges in helping employees understand the difference between CTC and in-hand salary. Employers find it difficult to calculate payroll that includes Provident Fund (PF) and gratuity. Employees often confuse themselves by thinking that CTC is their net salary, even after taxes are deducted.
An organization with poorly structured CTCs can lead to employee dissatisfaction and an increase in turnover. They should comply with all statutory deductions to avoid legal penalties. This guide explains the basic components and differences between in-hand salary and CTC, which are necessary for employers in India. To avoid confusion, the guide also discusses how to calculate the in-hand salary from CTC.
What is In-Hand Salary and CTC?
In-hand salary, also known as take-home pay or net salary, refers to the actual amount an employee receives as their monthly salary. The net amount is calculated after deducting mandatory statutory requirements, like income tax and the Employee Provident Fund (EPF). The formula for in-hand salary is:
In-hand salary = Gross Salary − (Income Tax + Employee PF + Professional Tax + Other Deductions)
For example, an employee’s gross salary is ₹80,000, and deductions are ₹10,000 for taxes and ₹6,000 for EPF. Their in-hand salary will be ₹64,000.
Cost-to-Company (CTC) is the total annual cost that a company spends on an employee. It includes a complete compensation package offered to employees, including a basic salary and benefits associated with the job role. CTC also includes allowances and statutory deductions, and to calculate CTC, the formula is:
Cost to Company (CTC) = Gross Salary + Allowances + Benefits + Employer Contributions.
Benefits include Provident Fund (PF), gratuity, life insurance, and health insurance.
For example, if an employee’s basic salary is ₹10,00,000, the employer’s PF contribution is ₹1,20,000, and the annual bonus is ₹50,000, then the CTC would be ₹11,70,000.
Components of In-Hand Salary and CTC
This section explains different components of in-hand salary and CTC to help understand this topic.
Basic Salary
The basic salary is the fixed and core amount of money an employee receives from an organization before any deductions. It’s the primary part of an employee’s compensation, upon which other components, like House Rent Allowance (HRA) and Dearness Allowance (DA), are added. Other benefits, like Provident Fund (PF) and gratuity, are based on basic pay.
Allowances
Allowances are additional amounts provided to employees by their employers in addition to their basic salary. It is given to employees to compensate or cover certain expenses related to their work. Allowances help employees manage costs associated with their job roles. Travel expenses and House Rent Allowance (HRA) are types of allowances that are dependent on government regulations.
House Rent Allowance (HRA)
House Rent Allowance (HRA) is given to employees to cover the cost of living in rented housing. Employers should know that HRA is not entirely taxable, even though it is part of an employee’s salary.
Dearness Allowance (DA)
Dearness Allowance (DA) is a cost-of-living adjustment provided to government employees to cope with inflation. The percentage of DA is calculated from an employee’s basic salary and changes in the Consumer Price Index (CPI) that tracks the cost of living.
Leave Travel Allowance (LTA)
Leave Travel Allowance (LTA) is a type of stipend provided to employees who are on leave from work. Employees are paid for their travel expenses and are exempt from tax under certain conditions.
Medical Allowance
A medical allowance is offered to employees as a part of their salary to cover their medical expenses. It is a pre-defined amount paid to an employee regardless of costs incurred and can be exempted when bills are submitted.
Conveyance Allowance
Conveyance allowance is also known as transport allowance, provided to employees to cover their travel expenses. It is added to an employee’s basic salary while they are traveling to and from their workplace.
Special Allowances
A special allowance is provided to employees for various reasons and is fully taxable. It is given in situations like achieving targets and rewarding employees.
Components Excluded from In-Hand Salary
We have mentioned the components excluded from the in-hand salary. These are:
Provident Fund (PF)
PF is a retirement savings scheme where employees and employers contribute a portion of an employee’s salary into a fund that earns interest. Both of them contribute to the employee’s basic salary and dearness allowance.
Tax Deducted at Source (TD)
TDS is a procedure conducted by the Indian government to collect taxes from the source of income. An employee’s tax is deducted from their salary by the employer and then remitted to the government.
Professional Tax
Professional Tax (PT) is deducted by an employer from an employee’s salary and then submitted to the government. It varies among different states and applies to all individual according to their profession and trade.
Gratuity
It is a lump sum payment made as a reward to an employee for long and dedicated service of a minimum of five years. It is a financial reward paid at the time of retirement or resignation.
How to Calculate In-Hand Salary from CTC?
To calculate the in-hand salary, it is necessary to consider various deductions and contributions. An example is used to break down the calculation of in-hand payroll components.
13 LPA In-Hand Salary Calculation
When an employee has a CTC package of ₹13 LPA, it includes the following components.
| Salary Components | Monthly Amount (in ₹) | Annual Amount (in ₹) |
|---|---|---|
| Gross salary | 80,000 | 9,60,000 |
| Performance bonus | 25,000 | 3,00,000 |
| Professional tax | 200 | 2,400 |
| PF contributions | 3,500 | 42,000 |
| Medical insurance premiums | 1,200 | 14,400 |
| CTC | 1,09,900 | 13,18,800 |
Based on the above calculation, for a CTC of 13 LPA, the in-hand salary of an employee will be:
In-hand monthly salary = Gross salary + performance bonus – deductions
= ₹80,000 + ₹25,000 – ₹200 – ₹3500 – ₹1200
= ₹1,00,100
In-hand annual salary = In-hand monthly salary × 12
= 12,01,200
25 LPA In-Hand Salary Calculation
When an employee has a CTC package of ₹25 LPA, it includes the following components.
| Salary Components | Monthly Amount (in ₹) | Annual Amount (in ₹) |
|---|---|---|
| Gross salary | 1,50,000 | 18,00,000 |
| Performance bonus | 50,000 | 6,00,000 |
| Professional tax | 200 | 2,400 |
| PF contributions | 8,500 | 1,02,000 |
| Medical insurance premiums | 3,000 | 36,000 |
| CTC | 2,11,700 | 25,40,400 |
Based on the above calculation, for a CTC of 25 LPA, the in-hand salary of an employee will be:
In-hand monthly salary = Gross salary + performance bonus – deductions
= ₹1,50,000 + ₹50,000 – ₹200 – ₹8,500 – ₹3,000
= ₹1,88,300
In-hand annual salary = In-hand monthly salary × 12
= 22,59,600
Difference Between In-Hand Salary and CTC
| Parameter | Cost to Company (CTC) | In-hand Salary |
|---|---|---|
| Definition | Total annual expense incurred by the employer for an employee. | The actual amount an employee receives as their salary. |
| Includes |
|
|
| Amount | High – Includes all components and indirect expenses. | Low – Compared to CTC |
| Objective | Shows total compensation package. | Shows actual monthly/annual earnings. |
Tools and Automation
Cloud-based payroll software, such as factoHR, can simplify and automate payroll-related calculations. The software can integrate with third-party systems to help centralize all the data. The software can streamline complex calculations, like gross-to-net salary and tax deductions. It ensures that human errors are eliminated and manual interventions are minimized, allowing HR professionals to focus on other strategic tasks.
Cloud-based payroll software can provide updates related to the latest tax laws and other statutory requirements. HR professionals and or organizations can stay compliant and minimize the risk of legal penalties. factoHR’s payroll software can create an audit trail by recording all changes, helping to maintain transparency. Companies can access payroll and tax reports to support informed decision-making. Cloud-based systems can scale easily as an organization grows, allowing HR professionals to manage increased data and complex calculations effectively.
Conclusion
Understanding the difference between Cost to Company (CTC) and in-hand salary is necessary in India. CTC refers to the total annual expense incurred by the employer, including basic salary and other benefits. In-hand salary is the final amount after deducting statutory requirements, including Provident Fund (PF) and Professional Tax (PT). The bifurcation is essential to understand for effective financial planning, as it enables accurate estimation of an employee’s salary.
Organizations can make informed decisions regarding investments and other financial commitments effectively. Payroll software is recommended for businesses that aim to enhance efficiency and accuracy in managing payroll tasks. It ensures compliance with tax laws and reduces the risk of penalties.
Frequently Asked Questions
Are CTC and In-Hand Salary the Same?
No, Cost-to-Company (CTC) and in-hand salary are not the same. CTC is the total cost an employer spends on an employee’s employment. It includes salary and other benefits, including insurance and the Employee Provident Fund (EPF). In-hand salary, which is also known as take-home pay or net salary, is the amount an employee receives after statutory deductions. These deductions include income tax and Provident Fund (PF).
What is the Take-Home Salary?
Take-home salary, which is also known as net or in-hand salary, is the amount an employee receives after both voluntary and mandatory deductions from their gross pay. These deductions include Employee Provident Fund (EPF) and Professional Tax (PT). The formula to calculate take-home salary is:
Take-home salary = Gross salary – (Income Tax + EPF + Professional Tax)
How to Calculate the Monthly Take-Home Salary?
To calculate the monthly take-home or net salary, mandatory deductions, like income tax and Employee Provident Fund (EPF), should be taken into consideration. The amount after all the deductions is the take-home salary of an employee. For example, an employee’s gross pay is ₹50,000, income tax is ₹2,000, and EPF is ₹6,000, so the salary comes to:
₹50,000 – (₹2,000 + ₹6,000 + ₹200) = ₹41,800
How to Calculate In-Hand Salary from the CTC Formula?
To calculate in-hand salary from Cost-to-Cost (CTC), employers need to first deduct statutory requirements, like Professional Tax (PT) and income tax. For example, an employee’s CTC is ₹5 lakh with a yearly bonus of ₹50,000. Here, the gross pay will be ₹4,50,000. The statutory deductions include a Professional Tax (PT) of ₹2,400 and an EPF contribution of ₹21,600. The net salary would be ₹4,26,000.
What are the Key Steps to Accurately Calculate the In-Hand Salary from CTC?
To calculate in-hand salary from Cost to Company (CTC), employers need to deduct specific statutory requirements, like Employee Provident Fund (EPF) and Professional Tax (PT). The steps are:
- Identify CTC components: Differentiate fixed components, like basic salary and allowances. There are variable components, like bonuses and performance-based incentives. CTC also includes deductions, like Professional tax (PT) and income tax.
- Calculate deductions
- Calculate net salary
How does Understanding Tax Deductions Impact My Take-Home Pay?
Understanding tax deductions impacts an employee’s take-home salary because it lowers the amount of tax withheld from salary and increases the net pay. Employees can minimize their overall tax liability by taking advantage of allowable deductions, which increase their taxable income.
Grow your business with factoHR today
Focus on the significant decision-making tasks, transfer all your common repetitive HR tasks to factoHR and see the things falling into their place.
© 2025 Copyright factoHR