Take-Home Pay in India: CTC vs In-Hand Salary

Take-home pay in India rarely matches the CTC number on an offer letter, and the gap surprises most foreign employers on their first India hire. Having run payroll for 2,000+ employees across India, we built this guide at Wisemonk to show exactly how a headline CTC becomes the amount that lands in an employee's bank account. We cover the calculation, worked examples at three salary bands, the tax regimes, and how the Labour Codes move the number.

What is the difference between CTC, gross salary, and take-home pay in India?

CTC (Cost to Company) is your total annual cost to employ someone, including employer statutory contributions. Gross salary is CTC minus those employer contributions. Take-home (in-hand) pay is gross minus the employee's own deductions: EPF, income tax (TDS), and professional tax. Each layer is smaller than the one above it.

For a US reader, CTC is closest to "total compensation cost," not salary. It bundles the base pay, allowances, and the employer's share of retirement and gratuity accrual into one figure. Indian offer letters almost always quote CTC, which is why candidates and employers talk past each other about "salary."

The three layers stack like this:

• CTC: basic pay, House Rent Allowance (HRA), other allowances, employer EPF (provident fund, India's version of a 401(k)), gratuity accrual, and any benefits you fund.
• Gross salary: CTC minus the employer's statutory contributions (employer EPF and gratuity accrual). This is the pay before the employee's own deductions.
• Take-home pay: gross minus employee EPF, Tax Deducted at Source (TDS), professional tax, and Employees' State Insurance (ESI) where it applies.

How the CTC is split across basic, HRA, and allowances is a separate design decision that affects the math below. We keep this page focused on the calculation; for the structuring choices themselves, see our guide to salary structure in India and what the standard payroll components are.

How is take-home pay calculated from gross salary in India?

Take-home pay is calculated by starting from CTC, subtracting employer statutory contributions to reach gross salary, then subtracting the employee's own deductions. Those employee deductions are EPF (12% of basic), professional tax (state-level, capped low), and TDS (income tax withheld under the applicable regime). What remains is annual take-home, divided by 12 for monthly in-hand.

Here is the method as a sequence:

1. Start with CTC: the full annual figure on the offer letter.
2. Subtract employer statutory contributions: employer EPF and gratuity accrual, to reach gross salary.
3. Subtract employee EPF: 12% of basic salary.
4. Subtract professional tax: the state levy, capped at ₹2,500 (about $29) a year.
5. Subtract TDS: income tax withheld each month under the new or old regime.
6. Divide by 12: to get monthly in-hand pay.

The worked example below applies this to a ₹15,00,000 (about $17,600) CTC for a single employee under the new regime, with Basic set at 50% of CTC. Treat the sub-figures as illustrative; exact TDS depends on declarations and month-by-month withholding.

In this example take-home is about 80% of CTC, which sits inside the usual 70% to 82% range. You can model your own figures with our India salary calculator. If EPF and gratuity mechanics matter to you, our gratuity calculator and the payroll process in 8 steps walk through the accruals.

What does take-home pay look like at different CTC levels in India?

Take-home as a share of CTC falls as pay rises, because higher earners cross more income-tax slabs while employer contributions stay roughly proportional. At around ₹10,00,000 CTC an employee keeps close to 85% because the Section 87A rebate wipes out income tax; by ₹25,00,000 the share drops to roughly 75%.

These are single-employee illustrations under the new regime with Basic at 50% of CTC and no ESI; actual figures shift with structure, declarations, and state.

Why the employee's take-home is not your total cost

For a foreign employer, the most important point on this page is that the take-home figure and even the CTC understate what hiring in India actually costs you. CTC is the cost of the employment relationship. It does not include your Employer of Record fee, one-time onboarding, equipment, or other on-costs you carry as the sponsoring company.

If you are sizing the full budget for a hire, model the total employer cost rather than working backward from take-home. Our employee cost calculator adds the EOR and on-costs on top of CTC, and our overview of how to pay employees in India explains where each rupee sits. Variable pay, bonuses, and incentives layer on separately; see variable pay in India for that piece.

What deductions reduce your take-home pay in India?

Four deductions move money from gross to take-home: employee EPF (12% of basic, into a retirement fund), TDS (income tax withheld monthly), professional tax (a small state levy), and ESI (only for employees earning ₹21,000 or less a month). EPF and TDS are the two large ones; professional tax and ESI are comparatively minor.

• Employee EPF: 12% of basic salary. The employer matches 12%, of which 8.33% goes to the Employees' Pension Scheme on the ₹15,000 (about $175) wage cap and 3.67% to EPF. EPF earned 8.25% interest for FY 2025-26. This is retirement saving, not lost money, but it does reduce monthly cash in hand.
• TDS (income tax): withheld each month based on projected annual income under the chosen regime. This is the largest lever on take-home for higher earners.
• Professional tax: a state-level levy capped at ₹2,500 (about $29) a year. Some states do not charge it at all.
• ESI: employee 0.75% and employer 3.25%, applicable only where monthly gross is ₹21,000 a month (as of July 2026, no increase has been notified) or less.

Professional tax varies by state, so the same CTC yields slightly different take-home depending on where the employee sits. This is where India's central-plus-state layering shows up on the payslip.

Getting each of these right, on time, is the core of payroll compliance in India. For the full remittance picture see our guide to payroll in India and managed payroll.

How does the tax regime affect take-home pay in FY 2026-27?

The tax regime is the single biggest driver of TDS and therefore of take-home. The new regime is the default for FY 2025-26 (tax year 2026-27) and gives most employees higher take-home because of wider slabs and the Section 87A rebate. The old regime only wins when an employee stacks large HRA, home-loan interest, and 80C deductions.

Under the new regime, the slabs (unchanged in Budget 2026) are:

• Up to ₹4,00,000: nil
• ₹4,00,001 to ₹8,00,000: 5%
• ₹8,00,001 to ₹12,00,000: 10%
• ₹12,00,001 to ₹16,00,000: 15%
• ₹16,00,001 to ₹20,00,000: 20%
• ₹20,00,001 to ₹24,00,000: 25%
• Above ₹24,00,000: 30%

The standard deduction is ₹75,000 (about $880). The Section 87A rebate (₹60,000) makes taxable income up to ₹12,00,000 tax-free, so salaried income up to about ₹12,75,000 (about $15,000) is effectively tax-free. One caveat to flag for employees: the 87A rebate does not apply to special-rate income such as capital gains.

Old regime versus new regime, worked side by side

The old regime keeps deductions like HRA exemption, home-loan interest, and Section 80C, but its slabs are steeper (30% kicks in above ₹10,00,000). For the ₹15,00,000 CTC example, the new regime gives more take-home unless the employee has a heavy deduction stack.

The gap is small even in the old regime's favor, and it only materializes when an employee actually rents in a metro, carries a home loan, and maxes 80C. For most hires without those, the new regime delivers higher in-hand pay. The Income Tax Act, 2025 (in force April 1, 2026) replaced the 1961 Act but did not change these slabs or the standard deduction.

How do the Labour Codes change take-home pay in India?

The Labour Codes (notified effective November 21, 2025, with state rules rolling out from April 1, 2026) require Basic + DA to be at least 50% of CTC under the Code on Wages. A higher basic raises both employee and employer EPF and gratuity accrual, which modestly lowers monthly in-hand while increasing retirement savings. Total CTC does not change.

The effect is a shift, not a loss. On a ₹15,00,000 CTC, moving basic from 40% to 50% raises employee EPF by about ₹18,000 a year, roughly ₹1,500 (about $18) a month. That amount leaves the paycheck but lands in the employee's provident fund, so net worth is unchanged even though cash in hand dips.

For employers, the practical takeaways are:

• Monthly in-hand may fall slightly: for existing staff as structures are corrected to the 50% floor.
• Retirement contributions rise: on both the employee and employer side, which can nudge your total cost if you re-benchmark.
• Gratuity accrual grows: with a higher basic, which matters at exit; see severance pay in India for how that interacts with a full-and-final settlement.

We track the Code changes as states publish rules, and reflect them in every payroll run. The mechanics of what employers must remit sit in our payroll compliance in India guide.

How can employers improve take-home pay without raising CTC?

You can lift an employee's in-hand pay at the same CTC by choosing the more favorable tax regime, using tax-efficient components, and adding employer contributions that are tax-free in the employee's hands. None of these raise your cost; they redistribute the existing CTC toward take-home or tax-free savings.

Practical moves that work:

• Confirm the right regime: for most employees the new regime now gives higher take-home; only heavy-deduction profiles benefit from the old regime.
• Structure components sensibly: thoughtful allowance design within the 50% basic floor can improve the after-tax outcome. See salary structure in India.
• Add employer NPS: the employer's National Pension System contribution is tax-free up to 14% of basic salary under the new regime, so it moves value to the employee without added tax.
• Use tax-efficient benefits: meal, telephone, and similar reimbursements can be more tax-efficient than plain allowances; our employee benefits in India guide covers the current options.

These are the same benefit and structuring levers we apply as an Employer of Record in India, so employees see a better in-hand number without your budget moving.

Why choose Wisemonk to manage take-home pay and payroll in India?

Wisemonk is an India-native Employer of Record that helps global companies hire, pay, and manage talent in India without setting up a local entity. We handle the full calculation on this page for you: correct CTC structuring under the Labour Codes, monthly TDS, EPF, ESI, and state professional tax, and a compliant payslip that gets the take-home number right.

We run payroll for 2,000+ employees and 300+ global clients, process $20M+ in annual payroll, and hold a 4.8/5 rating on G2, with EOR pricing from $99 per employee per month. Beyond payroll, we cover managed payroll, recruitment, benefits, and equipment, so your India hires are onboarded and paid correctly from day one.