How Salary is Calculated in India — CTC to In-Hand Salary with PF, ESI, TDS Explained

CTC (Cost to Company) is the total annual cost your employer incurs for your employment, including all direct and indirect benefits. CTC = Gross Salary + Employer PF contribution + Employer ESI + Gratuity provision + Other perks. A ₹12 LPA CTC doesn't mean you receive ₹1 lakh per month — your actual take-home is significantly less.

Gross Salary = CTC − Employer PF − Employer ESI − Other employer contributions. Gross salary appears on your payslip and is what forms the basis for income tax computation. For a ₹12 LPA CTC, gross salary is typically ₹10.8–11.4 LPA after removing employer PF (8.33% + 3.67% = 12% of basic).

Net Salary (Take-home) = Gross Salary − Employee PF − Employee ESI − Professional Tax − TDS. For a ₹12 LPA CTC person in the new tax regime, take-home is typically ₹82,000–88,000 per month depending on the salary structure and basic vs HRA split.

Both employee and employer each contribute 12% of Basic + DA to PF. However, the employer's 12% is split: 8.33% goes to EPS (Employee Pension Scheme, A/c 10) and 3.67% goes to EPF (A/c 1). The employee's full 12% goes to EPF (A/c 1).

PF is mandatory for companies with 20+ employees for employees earning up to ₹15,000/month basic+DA. For employees earning above ₹15,000 basic+DA, PF deduction is optional but often mandatory as per company policy. PF contribution is capped at ₹15,000 basic for mandatory purposes — many companies voluntarily deduct on actual basic.

PF accumulates at 8.25% interest per year (FY 2023-24 rate) and is tax-free at maturity if the employee has served 5+ continuous years. Early withdrawal before 5 years is taxable. You can withdraw PF online through EPFO Unified Member Portal after resignation.

Your employer deducts TDS (Tax Deducted at Source) from your salary every month based on your projected annual income and submitted investment declarations. TDS is an advance payment of income tax — it's not an extra charge but a deduction from salary deposited with the government.

Investment declaration process: submit Form 12BB to your employer declaring planned investments (PPF, LIC, ELSS, home loan, HRA, NPS etc.) at the start of the financial year. Based on this, TDS is calculated and deducted monthly. Submit actual proofs in Jan-Mar.

Under the new tax regime (default from FY 2024-25): no 80C, no HRA deduction, no home loan interest deduction. Only standard deduction of ₹75,000. Tax slabs are lower. For most salaried employees with income above ₹15L, the new regime is simpler but may result in higher tax if you have large home loan interest.