CTC vs take-home pay
An Indian offer letter quotes a number you will never be paid. What is inside a CTC, which parts never reach you, and why the gap is roughly a seventh even before tax.
Compare the two tax regimes on your salaryCTC is a budget, not a salary
Cost to company is exactly what the name says: everything your employer spends on employing you over a year. That includes money paid to you, money paid on your behalf, and money set aside against a future obligation. Only the first of those turns up in your account.
Nobody is being dishonest by quoting it. It is a real and useful figure - it is what you cost - and it is the number two employers can be compared on without arguing about salary structures. It is simply not the number you can spend, and offer letters rarely say so.
What is inside it
On a typical structure, three things stand between the headline and your bank account. Two of them never reach you at all; the third reaches a fund with your name on it rather than your account.
| Line | Amount | Do you get it? |
|---|---|---|
| Annual CTC | 12,00,000 | This is the quoted figure |
| Employer's provident fund, 12% of basic | 72,000 | Into your fund, not your account |
| Gratuity accrued, 4.81% of basic | 28,860 | Only after five years' service |
| Gross salary | 10,99,140 | Yes, before deductions |
| Your own provident fund, 12% of basic | 72,000 | Yours, but not this month |
| Left before income tax | 10,27,140 | Yes |
The gratuity line is the one worth arguing about
Gratuity is payable under the Payment of Gratuity Act, 1972, at fifteen days' wages for each completed year - but only after five years of continuous service. Employers accrue it inside the CTC from your first day, which means somebody who leaves after three years was quoted a figure that included money they were never going to receive.
Over the four years and eleven months before it vests, on the structure above, that is around ₹1,15,000 of CTC that does not exist. Whether an employer includes it is a policy choice, not a legal requirement, and it is a fair question to ask at offer stage.
Why the basic percentage matters more than anything else
Almost every number above is a percentage of basic pay, and basic is a percentage of CTC that the employer chooses. A structure with basic at 40% rather than 50% cuts both provident fund contributions and the gratuity accrual by a fifth, which raises your monthly take-home and lowers your retirement saving.
Neither is better in the abstract. A high basic is more forced saving and a lower monthly figure; a low basic is the reverse. What matters is knowing which one you have been offered, because two offers with identical CTCs and different basic percentages pay differently every month.
What is still missing from this
Variable pay is the big one. A CTC that includes a performance bonus is quoting you money that depends on a review, and it should be discounted accordingly when comparing offers. Professional tax, a state levy of a couple of hundred rupees a month where it applies, comes off as well.
Then income tax, which for most salaries at this level is the largest single deduction and depends on which regime you are on. That is the one comparison worth doing properly rather than estimating, because the answer is different for different people at the same salary.