CTC vs In-Hand Salary in India: Why Your Offer Letter Number Is Misleading You

₹12 LPA doesn’t mean ₹1,00,000 a month. Here’s where the rest of it goes.

You got an offer for ₹12 LPA. You do the quick math in your head: 12 divided by 12, that’s a lakh a month. Except it isn’t. Most people end up with 20 to 35% less than that number, and nobody really tells you why before you sign.

Here’s what’s actually going on.

CTC isn’t your salary

CTC stands for Cost to Company. It’s not what the company pays you, it’s what you cost the company. That includes your actual salary, sure, but it also includes a bunch of things that never show up in your bank account: retirement contributions, insurance the company buys for you, and bonus money you might not even get. The number on your offer letter tells you what you cost them. It doesn’t tell you what you’ll take home.

Three things quietly shrink your CTC before you ever see it

First is PF, the Provident Fund. You and your employer both put in money, usually 12% of your basic pay each, into a retirement account. It’s required by law, you can’t skip it. Your employer’s share counts as part of your CTC, but it’s sitting in a PF account, not your bank account.

Second is gratuity. Also required by law at most companies, but there’s a catch: you only get it if you stick around for five years. Companies still count it in your CTC on day one, even though most people never actually collect it because they leave before then.

Third is insurance. Health cover, life cover, whatever the company offers. Unlike PF and gratuity, this one usually isn’t required by law, it’s just something the company chooses to give you. You still can’t ask for cash instead, and it still counts as part of your CTC.

Then there’s variable pay, sometimes called a bonus. This is often 10 to 20% of your CTC, and here’s the thing, it’s not guaranteed. It depends on your performance, the company’s performance, sometimes both. It usually gets paid every quarter or once a year, never monthly. But it’s baked into your CTC as if it were regular salary.

And then tax takes a bite, sometimes

Whatever cash is actually left after all that still gets taxed. Under the new tax regime for FY 2026–27, if your taxable income after deductions is under ₹12,00,000, you pay zero income tax. A lot of people don’t realize this, and assume tax is always eating into their salary. Above that ₹12 lakh mark, real tax kicks in and it adds up fast.

Let’s actually do the math

Say your CTC is split roughly like this: 75% fixed pay, 15% variable, 5% employer PF, 3% gratuity, 2% insurance. That’s a fairly normal structure.

At ₹12,00,000 CTC: Your fixed cash pay comes to about ₹9,00,000. Income tax on that is zero, since it falls under the rebate. Your own PF contribution takes out around ₹60,000. That leaves you with roughly ₹70,000 a month in hand, not the ₹1,00,000 you expected. The whole gap here comes from PF, gratuity, insurance and variable pay, tax has nothing to do with it at this level.

At ₹24,00,000 CTC: Fixed pay works out to about ₹18,00,000. This time tax does apply, around ₹1,50,800 for the year. Your PF contribution takes another ₹1,20,000. You end up with about ₹1,27,400 a month, well short of the ₹2,00,000 you’d expect from a straight division. The gap grows to around 36% here, because now tax is actually part of the picture too.

What to actually do about it

Ask for the breakdown. Fixed pay, variable pay, PF, gratuity, insurance value, all of it. It’s a completely normal thing to ask for, don’t feel awkward about it.

Once you have it, plan your monthly budget around the fixed pay number, not the CTC. Variable pay is a bonus. Treat it like one.

If you want to check the tax math for your own number, run it through a take-home calculator instead of guessing.

And before you say yes to any offer, it’s worth checking whether the number is even a good one for your role and experience in the first place, not just how much of it reaches your account.

One more thing

If you want to run these numbers for your own offer, I built a free take home calculator that does the tax math for you, no signup needed. And if you’re trying to figure out whether the CTC itself is fair for your role, city and experience, Rekruit has real salary data pulled from actual employees, not surveys or guesses. Both are free to use: rekruit.in/take-home-calculator.html and rekruit.in/salary.html.

Signing off Aditya Yadav