The number in an Indian offer letter is Cost To Company. It is an accounting figure describing what the employer spends, and it includes several things that will never reach your account. Nobody explains this at offer stage, which is why the first payslip is so often a surprise.
The short version: subtract the employer's EPF match and the gratuity provision to get gross salary. From gross, subtract your own EPF, professional tax and income tax to get in-hand. On ₹18 lakh CTC that's ₹1,18,126 a month — about 79% of CTC. The share falls as you earn more, because tax is progressive while the fixed deductions aren't.
The two-step subtraction
There are two separate stages, and conflating them is the usual source of confusion.
Stage one — CTC to gross. These are employer costs that never appear on your payslip:
- Employer EPF — 12% of basic, paid into your provident fund
- Gratuity provision — about 4.81% of basic, set aside against a future payout
Stage two — gross to in-hand. These appear on the payslip as deductions:
- Your EPF — another 12% of basic
- Professional tax — a state levy, capped at ₹2,500 a year
- TDS — income tax deducted at source
₹18 lakh CTC, line by line
Assuming basic at 50% of CTC — the New Wage Code minimum — and the new tax regime:
| Component | Annual | Notes |
|---|---|---|
| CTC | ₹18,00,000 | The offer letter number |
| Less: employer EPF (12% of basic) | −₹1,08,000 | Goes to your PF, not your account |
| Less: gratuity provision (4.81%) | −₹43,290 | Only paid after 5 years |
| Gross salary | ₹16,48,710 | What your payslip shows |
| Less: standard deduction | −₹75,000 | Tax computation only |
| Taxable income | ₹15,73,710 | Above the ₹12L rebate ceiling |
| Less: income tax + 4% cess | −₹1,20,699 | New regime slabs |
| Less: your EPF (12% of basic) | −₹1,08,000 | Your retirement savings |
| Less: professional tax | −₹2,500 | State levy, capped |
| Annual in-hand | ₹14,17,511 | 78.8% of CTC |
| Monthly in-hand | ₹1,18,126 | — |
The ₹3,82,489 gap breaks into three very different things: ₹2,16,000 is retirement savings you own, ₹43,290 is a gratuity accrual you may or may not collect, and ₹1,23,199 is tax and levies that are genuinely gone.
The ceiling that changes everything
Here's the detail that explains why two people with identical CTCs compare payslips and find different numbers. EPF can be calculated two ways, and both are legal:
- On your actual basic salary — 12% of whatever you earn
- On the statutory wage ceiling of ₹15,000 a month — capping the contribution at ₹1,800 a month
On ₹10 lakh CTC that single policy choice moves things substantially:
| ₹10 lakh CTC | EPF on full basic | EPF on ₹15,000 ceiling |
|---|---|---|
| Your EPF (annual) | ₹60,000 | ₹21,600 |
| Gross salary | ₹9,15,950 | ₹9,54,350 |
| Income tax | ₹0 | ₹0 |
| Monthly in-hand | ₹71,121 | ₹77,521 |
₹6,400 a month of difference on the same CTC. It's tempting to read the right-hand column as the better offer, and for cash flow today it is — but the ₹38,400 a year difference isn't lost, it's compounding at 8.25% in a provident fund. Over a career that gap is worth considerably more than the monthly convenience. The lower take-home is the better deal; it's just the worse payslip.
Why the percentage falls as you earn more
| CTC | Monthly in-hand | Income tax (annual) | % of CTC |
|---|---|---|---|
| ₹10,00,000 | ₹71,121 | ₹0 | 85.3% |
| ₹18,00,000 | ₹1,18,126 | ₹1,20,699 | 78.8% |
| ₹30,00,000 | ₹1,80,685 | ₹3,97,129 | 72.3% |
All three use basic at 50% of CTC with EPF on full basic. Tripling CTC from ₹10 lakh to ₹30 lakh multiplies in-hand by only 2.54, because progressive slabs take a rising share. The ₹10 lakh row pays no tax at all — its taxable income sits under the ₹12 lakh Section 87A rebate ceiling.
That rebate is a cliff, not a taper. At ₹12,00,000 taxable you owe nothing; at ₹12,25,000 you owe ₹63,750 in full. A ₹25,000 raise across that line can leave you worse off — one of the few places in Indian tax where refusing a raise is arithmetically defensible. Model your own figure with the Income Tax Calculator.
What the New Wage Code did
The Code on Wages requires basic to be at least 50% of CTC. Employers historically kept basic at 30-40% and inflated special allowance, because that minimises EPF and gratuity liability and maximises the take-home number a candidate sees.
Forcing basic to 50% raises EPF and gratuity for everyone, which lowers monthly take-home and raises retirement savings. If your take-home fell after a restructure with no change in CTC, this is usually why — and the money went into your provident fund rather than anywhere else.
Reading an offer properly
- Ask for the salary structure, not just CTC. Basic, HRA, special allowance and employer PF — the split determines take-home far more than the headline.
- Check whether EPF is on full basic or the ₹15,000 ceiling. Worth thousands a month either way.
- Discount gratuity unless you'll stay five years. Below that you get nothing, so it's CTC you'll never collect. The Gratuity Calculator shows what it's worth if you do.
- Watch for variable pay inside CTC. A "₹20 lakh CTC" with ₹3 lakh of performance bonus is an ₹17 lakh guarantee.
- If you rent, check the HRA component — and note that four more cities became metros for HRA from April 2026, though only under the old regime.