- HOME
- Payroll administration
- How to calculate your in-hand salary from CTC
How to calculate your in-hand salary from CTC
Understanding what in-hand salary is and how it differs from CTC is essential for employers in India. It’ll help you break down your employees’ salary structure into various components. By clearly outlining deductions, you can ensure transparency and help employees better understand their take home salary.
What is in-hand salary and CTC?
Before understanding how to calculate in-hand salary from CTC, let us first learn the meaning of in-hand salary and CTC.
In-hand salary
In-hand salary, also referred to as net salary or take-home pay, is the actual amount an employee receives after all deductions. It is the money that remains once taxes and other deductions have been subtracted from the gross salary. The formula to calculate in-hand salary is as follows:
In-hand salary = Gross salary - Deductions
In the sample salary slip below, you can see that the employee's in-hand salary is ₹75,750, while the gross salary amounts to ₹82,250.
Cost to Company (CTC)
CTC, or Cost to Company, represents the total amount a company spends on an employee in a year. It includes not just the salary but also other expenses like provident fund contributions, bonuses, and benefits that contribute to the employee's overall compensation package.
To calculate CTC, you can use the following formula:
CTC = Gross salary + Benefits (PF + Bonus + Medical insurance premiums)
In-hand salary and CTC components
The following are the common in-hand salary and CTC components:
- Basic salary: This is a core part of the CTC structure and typically makes up 40% to 50% of the total CTC. It is a fixed salary component and other benefits like provident fund contributions and gratuity are based on this amount.
- Allowances:Allowances are fixed amounts provided by the employer to cover specific expenses. These can be taxable or non-taxable, depending on their nature. Some allowances are given based on job roles, while others are available to all employees. The following are some common types of allowances given to employees:
- House Rent Allowance (HRA): HRA helps cover rental costs and varies depending on the city. It is partially exempt from tax under the Income Tax Act.
- Dearness Allowance (DA): This is usually offered by government employers to offset inflation. The percentage of DA varies with the inflation rate.
- Leave Travel Allowance (LTA): Offered for travel expenses during leave. This can be exempt from tax under certain conditions.
- Medical allowance: Provided to cover medical expenses for the employee and their family. Tax exemptions can be claimed by submitting medical bills.
- Conveyance allowance: This covers travel expenses from home to work.
- Special allowances: These are additional allowances that are fully taxable and help in adjusting the total CTC offered to employees.
Components excluded from in-hand salary
The following components are deducted from the employee’s CTC, and the remaining amount is paid to them as take-home salary.
- Provident Fund (PF):A portion of the salary is deposited into the employee’s PF account. Both the employer and employee contribute 12% of the EPF wage to this fund.
- Tax Deduction at Source (TDS): TDS is a tax collected directly from the source of income. This means when an employer makes a payment to an employee, they are required to deduct a portion of the tax depending on the employee’s income and remit it to the central government.
- Professional tax:This is a tax that employers deduct from an employee’s salary and submit to the state government. It varies among different states and applies to all individuals earning income through employment, profession, or trade, and varies by state.
- Gratuity: Gratuity is a payment made by the company to an employee as a token of appreciation for their long-term service. It is given when an employee has completed at least five years with a company.
How to calculate in-hand salary from CTC?
To determine the in-hand salary from the CTC, you will need to account for various deductions and contributions. Let us break down the in-hand salary calculation by looking at a few examples.
4 LPA in-hand salary calculation
Suppose an employee has a CTC package of ₹4 LPA and has the following components.
| Salary components | Monthly amount (in ₹) | Annual amount (in ₹) |
| Gross salary | 28,000 | 3,36,000 |
| Performance bonus | 4,000 | 48,000 |
| Professional tax | 150 | 1,800 |
| PF contributions | 1,200 | 14,400 |
| Medical insurance premiums | 150 | 1,800 |
| CTC | 33,500 | 4,02,000 |
Based on the above table, for a CTC of 4 lakh, the in-hand monthly salary your employee will get is:
In-hand monthly salary = Gross salary + performance bonus - deductions
In-hand monthly salary = ₹28,000 + 4,000 - 1,500
In-hand monthly salary = ₹30,500
In-hand annual salary = In-hand monthly salary × 12
In-hand annual salary = ₹3,66,000
10 LPA in-hand salary calculation
Suppose an employee has a salary package of ₹10 LPA and has the following components.
| Salary components | Monthly amount (in ₹) | Annual amount (in ₹) |
| Gross salary | 66,666 | 7,99,992 |
| Performance bonus | 10,833 | 1,29,996 |
| Professional tax | 200 | 2,400 |
| PF contributions | 1,800 | 21,600 |
| Medical insurance premiums | 250 | 3,000 |
| Income tax | 3,683 | 44,196 |
| CTC | 33,500 | 4,02,000 |
Based on the above table, for a CTC of 10 lakh, the in-hand monthly salary your employee will get is:
In-hand monthly salary = Gross salary + performance bonus - deductions
In-hand monthly salary = ₹66,666 + 10,833 - 5,933
In-hand monthly salary = ₹71,566
In-hand annual salary = In-hand monthly salary × 12
In-hand annual salary = ₹8,58,792
Difference between in-hand salary and CTC
| Parameters | Cost to Company | In-hand salary |
| Meaning | The total cost that the company bears for an employee, including all benefits and allowances. | The actual amount of salary that gets credited to the employee’s bank account. |
| Tax calculation | Calculated on the entire CTC, covering all included components. | This is the remainder paid to the employee as take-home pay post tax and other deductions. |
Learn more about the differences between CTC, in-hand salary, and gross salary here.
The way forward
Cloud-based software like Zoho Payroll streamlines the in-hand salary and CTC calculation process, ensuring accuracy and transparency at every step. By automating these calculations and handling various deductions efficiently, the payroll software simplifies the complexities of salary management, allowing you to focus on your business.
Frequently asked questions on in-hand salary
Are CTC and in-hand salary the same?
No, CTC and in-hand salary are not the same. CTC represents the total cost an employer spends to employ an individual. In contrast, in-hand salary is the amount that gets credited to the employee’s account each month after various deductions.
What is the meaning of take-home salary?
Take-home salary, or net salary, is the amount an employee receives after all applicable deductions. These deductions include income tax (TDS), PF, professional tax, and other deductions as outlined in the company's policy. It represents the actual income an employee takes home each month after these reductions have been applied.
How to calculate monthly take-home salary?
To calculate an employee’s monthly take-home salary, divide the annual take-home salary by 12.
Annual take-home salary = Annual gross salary – (income tax + provident fund + professional tax)
Monthly take-home salary = Annual take-home salary / 12