How CTC is Structured in India
CTC (Cost to Company) is the total annual cost to the employer. It includes many components beyond the monthly salary - some are paid to you, some go into statutory accounts, and some are notional costs. Understanding the structure helps you negotiate better and plan taxes effectively.
CTC = Basic Salary
+ HRA (House Rent Allowance)
+ Special / Other Allowances
+ Employee PF (12% of Basic - your contribution)
+ Employer PF (12% of Basic - company's contribution)
+ Gratuity (~4.81% of Basic)
+ Medical / LTA / Food Allowance
+ Variable Pay / Bonus (if any)
Monthly In-Hand = Monthly Gross Salary
− Employee PF Deduction
− Professional Tax
− TDS (Tax Deducted at Source)
Old Tax Regime vs New Tax Regime (FY 2024–25)
India has two parallel tax regimes since FY 2020–21. The New Tax Regime is now the default from FY 2023–24:
NEW TAX REGIME (FY 2024-25) - Default Standard Deduction: ₹75,000
₹0 – ₹3,00,000 → Nil
₹3L – ₹7,00,000 → 5%
₹7L – ₹10,00,000 → 10%
₹10L – ₹12,00,000 → 15%
₹12L – ₹15,00,000 → 20%
Above ₹15,00,000 → 30%
Rebate u/s 87A: Full tax rebate if taxable income <= ₹7L
OLD TAX REGIME - By choice (with deductions) Standard Deduction: ₹50,000
₹0 – ₹2,50,000 → Nil
₹2.5L – ₹5,00,000 → 5%
₹5L – ₹10,00,000 → 20%
Above ₹10,00,000 → 30%
Rebate u/s 87A: Full tax rebate if taxable income <= ₹5L
Key Deductions Available Under Old Regime
Section 80C (₹1.5L limit) - EPF, PPF, ELSS, LIC premium, home loan principal, NSC, tax-saving FD, Sukanya Samriddhi.
HRA Exemption - Minimum of: actual HRA received; 50%/40% of Basic (metro/non-metro); actual rent paid minus 10% of Basic. This can be a large deduction for those paying rent in metros.
Section 80D - Health insurance premium for self (₹25,000), parents (₹25,000–₹50,000 for senior citizens).
Section 24(b) - Home loan interest deduction up to ₹2L for self-occupied property.
Leave Travel Allowance (LTA) - Exempt for 2 journeys in a 4-year block.
Frequently Asked Questions
What is CTC and how is it different from in-hand salary?
CTC (Cost to Company) is the total amount a company spends on an employee annually, including basic salary, allowances, PF contributions, gratuity, and other benefits. In-hand salary is the actual amount credited to your bank account each month after deductions like PF, Professional Tax, and TDS.
Why is my in-hand salary much less than my CTC?
CTC includes components that are not paid to you directly. The biggest differences: (1) Employer PF contribution (12% of Basic) is in your CTC but goes to your PF account, not salary; (2) Gratuity (~4.81% of Basic) accrues in your CTC but is paid only when you leave after 5 years; (3) Your employee PF (12% of Basic) is deducted from your gross salary; (4) TDS is deducted based on your annual tax liability. Together, these can reduce in-hand salary to 60–75% of CTC for mid-level employees.
Which tax regime saves more tax?
It depends on your deductions. The New Regime is better if your total deductions (80C + HRA + 80D + others) are less than the "break-even" deduction amount. For a ₹12L CTC, the break-even is roughly ₹2.75L in deductions - if you have more than this (e.g., ₹1.5L 80C + ₹1.2L HRA + ₹25K 80D = ₹2.95L), the Old Regime saves more tax. Use the comparison in our calculator to see which is better for your specific numbers.
What is the standard deduction in FY 2024–25?
Under the New Tax Regime, the standard deduction was increased to ₹75,000 in Budget 2024 (from ₹50,000). Under the Old Tax Regime, it remains ₹50,000. The standard deduction is a flat deduction from gross salary, no documentation needed. It was reintroduced in FY 2018–19 to replace transport allowance (₹19,200) and medical reimbursement (₹15,000).
Is PF deducted from CTC or in addition to CTC?
Both your PF contribution (12% of Basic) and the employer's PF contribution (12% of Basic) are typically included within the CTC. So PF is deducted from your CTC, not added on top. This means the net salary credited to your bank is reduced by your own PF contribution. The employer's PF is a separate cost to the company that appears in your CTC but never reaches your salary account.
What is Professional Tax and who pays it?
Professional Tax (PT) is a state-level tax levied on salaried employees. Not all states charge it - currently Maharashtra, Karnataka, West Bengal, Gujarat, and Andhra Pradesh are among those that do. The maximum is ₹2,500/year (₹200–₹208/month). It is deducted by the employer from your salary and remitted to the state government. Professional Tax paid is also deductible under Section 16(iii) of the Income Tax Act.
