You receive an offer letter for 6 LPA and do the maths: 6 lakh divided by 12 is ₹50,000 a month. Then your first payslip arrives, and the amount credited to your bank account is closer to ₹43,000. Nothing has gone wrong. The difference comes from how salaries in India are structured, and understanding it helps you compare offers properly and negotiate with realistic numbers.
What CTC means
CTC stands for cost to company. It is the total amount an employer spends on you in a year, not the amount you receive. It typically includes:
- Fixed salary components paid monthly, such as basic pay, house rent allowance (HRA) and special allowance.
- Employer contributions that are paid on your behalf but not to you directly, such as the employer's share of Provident Fund (PF).
- Gratuity, which you only receive if you complete five years with the company.
- Variable pay or performance bonus, which depends on your rating and the company's results and is usually paid quarterly or yearly.
- Benefits such as health insurance premiums, meal cards or one-time joining bonuses.
Gross salary versus in-hand salary
Three terms are worth keeping apart:
- CTC: everything above, per year.
- Gross salary: CTC minus employer contributions (employer PF, gratuity, insurance) and anything not paid monthly. This is your salary before deductions.
- Net or in-hand salary: gross salary minus deductions taken from your pay, such as your own PF contribution, professional tax and income tax (TDS). This is what reaches your bank account.
The deductions, explained
Provident Fund (PF)
Under the EPF scheme, you and your employer each contribute 12% of your basic salary. Your 12% is deducted from your pay. The employer's 12% is usually counted as part of your CTC, so effectively it also comes out of your package. Many companies cap the contribution at 12% of ₹15,000, which is ₹1,800 a month, while others calculate it on your full basic pay.
PF is not lost money. It is long-term savings that earn interest and can be withdrawn under certain conditions, but it does reduce your monthly take-home.
Gratuity
Gratuity is a lump sum paid when you leave after at least five years of continuous service. Companies often include roughly 4.81% of basic salary in the CTC for it. If you leave before five years, you generally will not receive it, so treat it as money you may never see.
Professional tax
Some states, including Karnataka, Maharashtra, Tamil Nadu, West Bengal and Telangana, charge a small professional tax, capped at ₹2,500 a year. It usually appears on your payslip as ₹150 to ₹300 a month.
Income tax (TDS)
Your employer deducts income tax every month based on your estimated annual income and the tax regime you choose. Under the new tax regime as changed in Budget 2025, a salaried person whose taxable income is up to ₹12 lakh pays no income tax because of the rebate, and the standard deduction of ₹75,000 means a salary of up to about ₹12.75 lakh is effectively tax-free. Tax rules change with each budget, so check the current slabs on the Income Tax Department's website when you compare offers.
A worked example: 6 LPA
Salary structures vary between companies, but here is a common one for a ₹6,00,000 CTC, with basic pay set at 40% of CTC (₹20,000 a month):
- Monthly CTC: ₹50,000
- Minus employer PF (12% of basic): ₹2,400
- Minus gratuity (4.81% of basic): about ₹962
- Minus group health insurance premium: about ₹500
- Gross monthly salary: about ₹46,138
- Minus employee PF (12% of basic): ₹2,400
- Minus professional tax: ₹200
- Minus income tax: ₹0 under the new regime at this income
- In-hand salary: about ₹43,500 a month
So a 6 LPA offer turns into roughly ₹5.2 lakh a year in your bank account, before counting any PF savings. If the CTC also includes a variable component, the monthly figure would be lower still, with the rest paid later depending on performance.
What to check in an offer letter
Before accepting, ask HR for the full salary breakup (often called the annexure) and look for:
- Fixed versus variable pay. A 10 LPA offer with 2 lakh variable is really 8 LPA guaranteed. Ask how much of the variable was actually paid out to employees last year.
- One-time components. Joining bonuses and relocation allowances are sometimes added to the first-year CTC, which makes it look higher than your ongoing salary. Joining bonuses often have to be returned if you leave within a year.
- PF calculation. Whether PF is capped at ₹1,800 or calculated on full basic can change your take-home by thousands of rupees a month.
- Benefits that cost you nothing extra. Some companies provide insurance, meals or transport outside the CTC. These add real value even though they do not appear in the headline number.
- Bonds and notice periods. A service agreement requiring you to pay if you leave early, or a 90-day notice period, affects how freely you can move later.
Comparing two offers
When comparing offers, convert both to guaranteed monthly in-hand salary first. Then consider the variable component, benefits, learning opportunities, commute and growth. An offer that is 1 LPA lower on CTC can be better if it has no variable pay, better insurance and a shorter commute.
When you are ready to discuss a better number, read our guide on how to negotiate a salary offer.
This article is general information, not tax or financial advice. Figures are illustrative and based on rules at the time of writing.