CTC, gross and in-hand
| Term | What it is | Example (₹6 lakh CTC, a month) |
|---|---|---|
| CTC | Everything the company spends on the employee, including its own PF and ESIC | ₹50,000 |
| Gross | CTC minus the employer's contributions: what the employee earns | ₹47,000 |
| In-hand | Gross minus the employee's PF, ESIC, Professional Tax and income tax: what reaches the bank | ₹43,800 |
The usual parts of a salary
| Part | What it is |
|---|---|
| Basic | The fixed core of the salary, often 40% to 50% of CTC. PF, gratuity and leave encashment are worked out on it. |
| DA | Dearness allowance, common where minimum wages apply. It counts together with basic. |
| HRA | House rent allowance. Under the old tax regime part of it can be tax-free if the employee pays rent. |
| Other allowances | Conveyance, washing, education and similar. Most are taxable in the new regime. |
| Special allowance | The balance, so that the parts add up exactly to the CTC. |
| Employer PF and ESIC | Part of the CTC, but paid to EPFO and ESIC, not to the employee. |
| Gratuity | Some companies show about 4.81% of basic in the CTC for it; others leave it out. |
Deductions from gross pay
- Employee PF: 12% of PF wages, at most ₹3,000 a month when PF is on the ₹25,000 wage ceiling. PF calculator.
- ESIC: 0.75% when ESIC wages are ₹21,000 a month or less. ESIC calculator.
- Professional Tax and LWF: as the state sets them. Professional Tax calculator.
- Income tax (TDS): spread over the year under the old or new regime.
- Your own deductions: canteen, advances, loan instalments and the like.
A worked example
- CTC ₹6,00,000 a year is ₹50,000 a month. Basic is 50%: ₹25,000.
- PF is on the ₹25,000 ceiling, so the employer pays ₹3,000. Gross is ₹50,000 − ₹3,000 = ₹47,000: basic ₹25,000 plus HRA and allowances ₹22,000.
- The employee pays PF of ₹3,000 and Professional Tax of ₹200 (Gujarat). ESIC does not apply above ₹21,000 of ESIC wages, and income tax is nil under the new regime at this salary.
- In-hand pay is ₹47,000 − ₹3,000 − ₹200 = ₹43,800 a month.
The Labour Code 50% rule
Under the Labour Codes, if allowances are more than half of total pay, the excess counts as wages for PF, ESIC and gratuity. A structure with a very low basic no longer keeps PF down. Most companies now keep basic and DA at about half of total pay. The 50% wages rule explained.
Common mistakes
- A basic so low that the 50% rule adds allowances back for PF anyway.
- Basic and DA below the state minimum wage, even when the gross is above it. Minimum wages by state.
- Adding PF, ESIC or Professional Tax as pay heads instead of deducting them as the law says.
- A structure whose parts do not add up to the CTC, leaving part of it unpaid.
- Checking ESIC on gross pay instead of ESIC wages.
How HR Bingo handles it
A salary structure in HR Bingo has parts by percentage or fixed amount and one part marked as the balance, so the CTC is always fully paid. Type the CTC or gross and HR Bingo shows a full month before you save: earnings, PF, ESIC, Professional Tax, the amount in hand and the employer's cost. PF, ESIC, PT, LWF and TDS are worked out every month, never typed in, and HR is warned when basic and DA fall below the minimum wage. Payroll.
Sources
Frequently asked questions
What percentage of CTC should basic be?
Most companies keep basic, or basic and DA together, at 40% to 50% of CTC. Under the Labour Codes, allowances above half of total pay count as wages anyway.
Is the employer's PF part of CTC?
Usually yes. That is why gross pay is lower than the CTC.
What is the difference between gross and in-hand salary?
Gross is what the employee earns in the month. In-hand is what is left after their PF, ESIC, Professional Tax and income tax.
Is HRA part of basic?
No. HRA is a separate allowance, often set as a share of basic.