CTC vs Gross vs Net Salary: Differences with a ₹6 Lakh Example
An offer letter says ₹6 lakh, the payslip shows a gross of about ₹47,000 and the bank credit is lower still. Here is what sits inside each of the three numbers, how one becomes the next, and a fully worked ₹6 lakh CTC breakdown.
Key points
- CTC is the employer's total yearly cost for you, including amounts you never receive in the monthly salary, such as employer PF and gratuity.
- Gross salary is CTC minus those employer-side costs: the earnings printed on your payslip before any deduction.
- Net salary (take-home or in-hand) is gross minus employee PF, ESI, professional tax, TDS and any recoveries.
- On a ₹6 lakh CTC with the assumptions below, monthly gross is ₹46,997.50 and take-home is ₹44,997.50, about 90% of CTC.
- The labour codes define "wages" so that excluded allowances cannot exceed 50% of pay. Where they do, PF and gratuity can rise and take-home can fall.
Three numbers, three different questions
Each salary figure answers a different question, which is why the three rarely match.
| Term | Question it answers | Where you see it |
|---|---|---|
| CTC (cost to company) | What does this employee cost the business in a year? | Offer letter, appointment letter, salary revision letter |
| Gross salary | What does the employee earn before deductions? | Earnings total on the payslip |
| Net salary | How much actually reaches the bank account? | Net pay line on the payslip, bank statement |
Candidates compare offers on CTC, but they pay rent from net salary. HR teams need all three: CTC for budgeting, gross for statutory calculations such as ESI, and net for the payment file.
What sits inside CTC
There is no statutory definition of CTC. It is a way of presenting pay, and each employer decides what to include. Most Indian salary structures contain some mix of the following.
- Basic salary. The fixed core of pay, commonly 40–50% of CTC. PF, gratuity and often leave encashment are calculated on basic (plus dearness allowance, where paid).
- House rent allowance (HRA). Often 40–50% of basic. It can be partly tax-exempt under the old tax regime if the employee pays rent.
- Other allowances. Special allowance, conveyance, medical, children's education, uniform and similar. Special allowance is usually the balancing figure that makes the structure add up to CTC.
- Employer PF contribution. 12% of PF wages, which the employer deposits with EPFO. It is part of the cost but is not paid to you monthly.
- Gratuity. Many employers set aside 4.81% of basic each year (15 ÷ 26 ÷ 12 ≈ 4.81%). It is only paid out on exit after five years of continuous service, or earlier on death or disablement.
- Employer ESI. 3.25% of gross wages for employees earning up to ₹21,000 a month.
- Variable pay and bonus. Performance bonus, statutory bonus or incentives. These are paid only if targets or conditions are met, so the amount in CTC is a maximum or a target, not a promise.
- Insurance and benefits. Group health or term insurance premiums, meal cards, and sometimes employer NPS contribution.
When you read an offer, look for three things: what share of CTC is variable, whether employer PF and gratuity are included, and whether insurance premiums are counted. Two ₹6 lakh offers can differ by several thousand rupees a month in take-home.
Gross salary: CTC minus employer-side costs
Gross salary is the total of the earnings the employee is actually paid in a month. To get there, remove from CTC everything the employer pays to someone else or holds back.
Gross salary is also the number that decides ESI coverage. If monthly gross wages are ₹21,000 or less, the employee is covered and 0.75% is deducted from their pay.
Net salary: gross minus deductions
Net salary is what remains after the deductions made from the employee's own pay.
- Employee PF: 12% of basic + DA. Many employers restrict this to the ₹15,000 wage ceiling, giving a maximum of ₹1,800 a month.
- Employee ESI: 0.75% of gross wages, only if covered.
- Professional tax: a state levy of up to ₹2,500 a year. Several states charge up to ₹200 a month; some states charge none.
- TDS on salary: income tax the employer deducts on the basis of the estimated annual tax for the regime the employee chooses.
- Recoveries: salary advances, loan EMIs, canteen or transport charges, and loss of pay for unpaid absence.
You can try your own figures in the free CTC to in-hand salary calculator, which lets you change the basic percentage and compare tax regimes.
Worked example: ₹6 lakh annual CTC
Every structure is different, so first the assumptions. Change any one of them and the figures change.
Assumptions
- Annual CTC ₹6,00,000, all fixed (no variable pay, no insurance premium inside CTC).
- Basic salary = 50% of CTC. HRA = 50% of basic. Special allowance is the balance.
- Employer and employee PF are both 12% of the ₹15,000 wage ceiling, i.e. ₹1,800 a month each.
- Gratuity provision = 4.81% of annual basic, shown inside CTC.
- Monthly gross is above ₹21,000, so ESI does not apply.
- Professional tax ₹200 every month. New tax regime, no other income.
Step 1: break CTC into components
| Component | How it is worked out | Annual (₹) | Monthly (₹) |
|---|---|---|---|
| Basic salary | 50% × ₹6,00,000 | 3,00,000 | 25,000.00 |
| HRA | 50% × basic | 1,50,000 | 12,500.00 |
| Special allowance | Balancing figure | 1,13,970 | 9,497.50 |
| Gross salary | Basic + HRA + special allowance | 5,63,970 | 46,997.50 |
| Employer PF | 12% × ₹15,000 × 12 | 21,600 | 1,800.00 |
| Gratuity provision | 4.81% × ₹3,00,000 | 14,430 | 1,202.50 |
| CTC | Gross + employer PF + gratuity | 6,00,000 | 50,000.00 |
The special allowance is simply what is left: ₹6,00,000 − ₹3,00,000 − ₹1,50,000 − ₹21,600 − ₹14,430 = ₹1,13,970.
Step 2: check income tax under the new regime
Taxable salary is gross salary less the ₹75,000 standard deduction: ₹5,63,970 − ₹75,000 = ₹4,88,970. Employer PF within the exempt limits is not added to salary income.
Tax at slab rates is 5% on the ₹88,970 above ₹4 lakh, which is ₹4,448.50. Because taxable income is below ₹12 lakh, the rebate (Section 87A under the Income-tax Act, 1961; the Income-tax Act, 2025 renumbers it) wipes this out. TDS is nil. These are the slabs announced in Budget 2025; confirm the rates for the current year.
Step 3: from gross to take-home
| Line | Monthly (₹) | Annual (₹) |
|---|---|---|
| Gross salary | 46,997.50 | 5,63,970 |
| Less: employee PF (12% × ₹15,000) | 1,800.00 | 21,600 |
| Less: professional tax | 200.00 | 2,400 |
| Less: TDS | 0.00 | 0 |
| Net take-home salary | 44,997.50 | 5,39,970 |
So the ₹6 lakh CTC becomes ₹44,997.50 a month in hand, which is ₹5,39,970 a year or roughly 90% of CTC. The other ₹60,030 is not lost: ₹43,200 (both PF shares) builds the employee's retirement savings, ₹14,430 is a gratuity provision, and ₹2,400 goes to the state as professional tax.
If PF were calculated on the full basic of ₹25,000 instead of the ₹15,000 ceiling, both shares would be ₹3,000 a month. Within the same CTC, gross and take-home would both fall. Ask which basis your employer uses before comparing offers.
The labour codes and the 50% wage rule
The four labour codes, including the Code on Wages, 2019 and the Code on Social Security, 2020, were brought into force from 21 November 2025. The Centre and the states are still notifying the rules that go with them, so check the position for your state before restructuring salaries.
The codes use one definition of wages: broadly basic pay, dearness allowance and retaining allowance. Items such as HRA, conveyance, overtime, bonus and the employer's PF contribution are excluded. The catch is a cap. If the excluded items together exceed 50% of total remuneration, the excess is added back to wages. Wages in turn drive PF (where PF is paid on actual wages), gratuity and some other benefits.
Illustration
An employee has a monthly gross of ₹40,000 with basic ₹12,000 (30%) and allowances of ₹28,000.
- 50% of ₹40,000 is ₹20,000. The allowances exceed that by ₹8,000, so wages become ₹12,000 + ₹8,000 = ₹20,000.
- With PF restricted to the ₹15,000 ceiling, employee PF moves from ₹1,440 (12% × ₹12,000) to ₹1,800 (12% × ₹15,000). Take-home falls by ₹360.
- If CTC is fixed and the employer's matching ₹360 is also taken out of allowances, take-home falls by ₹720 a month.
- Gratuity for each year of service rises from ₹6,923 (₹12,000 × 15 ÷ 26) to ₹11,538 (₹20,000 × 15 ÷ 26).
In the ₹6 lakh example above, basic is already ₹25,000 of a ₹46,997.50 gross, about 53%, so the rule would not change anything. Structures with a low basic and a large special allowance are the ones affected. Exactly what counts as "total remuneration" depends on the final rules, so treat any calculation as indicative until your state's rules are settled.
What this means for employers running payroll
Every CTC letter becomes a monthly calculation: component amounts, paid days, PF on the chosen basis, ESI where applicable, then deductions. Keeping those rules in a spreadsheet gets harder with each revision.
In Swastik Payroll's salary management, you build components once as fixed amounts, percentages of base salary or rule-based items, mark each as an earning or deduction, and apply the structure to employees. Revisions are saved as new versions from their effective month, so past payslips keep the salary they were paid on. PF and ESIC figures come from the same salary run. TDS is entered as a deduction; the tax amount itself is worked out by you or your CA.
To check a single employee's gross-to-net figures, use the free salary calculator. For the PF split behind the employer share, see how PF is calculated.
Frequently asked questions
Is gross salary the same as CTC?
No. CTC includes costs the employer pays on your behalf, such as employer PF, gratuity provision, employer ESI and insurance premiums. Gross salary leaves those out and shows only the earnings paid to you. Gross is always lower than CTC unless the employer includes none of those costs.
How much of CTC is take-home salary?
There is no fixed ratio; it depends on the structure. In our ₹6 lakh example, with no variable pay and nil tax, it is about 90%. A large variable component, PF on full basic or higher income tax will lower the share.
Is employer PF part of my salary?
It is part of your CTC and it is credited to your PF and pension accounts, but it is not paid to you each month and does not appear in gross earnings. You receive the EPF portion, with interest, when you withdraw your PF balance.
Will the new labour codes reduce my take-home pay?
Only if your excluded allowances exceed 50% of your pay and your employer restructures to meet the wage definition. Then PF and gratuity can rise while monthly take-home falls, even though total benefits increase. Rules are still being notified, so the actual effect depends on your employer and state.
Why does my net salary change from month to month?
Loss of pay for unpaid absence, overtime, incentives, arrears, advance recoveries and changes in TDS after you submit or revise tax declarations all move the net figure. Your payslip should show each one on a separate line.
This guide is general information for employers and employees in India, not legal or tax advice. Statutory rates, limits and forms change; confirm the current position with EPFO, ESIC, the Income Tax Department or your CA before acting on it.