Salary in India is more than a number: CTC, gross, deductions and net pay are different things. This guide shows how each is calculated, with a worked example including loss of pay.
CTC, gross and net: the three numbers
- CTC (cost to company): everything the employer spends, including employer PF, insurance and benefits.
- Gross salary: monthly earnings before deductions (basic, HRA, allowances).
- Net (take-home) pay: gross minus employee deductions such as PF, ESI, Professional Tax, TDS, and loan EMI.
Typical salary structure
| Component | How it is usually set |
|---|---|
| Basic | Commonly 40–50% of gross; PF and gratuity depend on it |
| HRA | Often 40% or 50% of basic; exemption rules apply in the Old tax regime |
| Special/other allowances | The balancing figure that completes gross |
| Employer PF | 12% of PF wages, part of CTC |
| Variable pay / bonus | Paid as per policy, may be taxable |
Worked example: gross ₹40,000, two days of loss of pay
| Step | Calculation | Amount (₹) |
|---|---|---|
| Monthly gross | Basic 20,000 + HRA 10,000 + Special 10,000 | 40,000 |
| Loss of pay | 40,000 ÷ 30 × 2 days | 2,667 |
| Earned gross | 40,000 − 2,667 | 37,333 |
| Employee PF | 12% × ₹15,000 (ceiling) | 1,800 |
| Professional Tax | State slab (example: Maharashtra) | 200 |
| TDS | Taxable income low enough for nil TDS in this example | 0 |
| Net pay | 37,333 − 1,800 − 200 | 35,333 |
📌 This is an illustration. The per-day divisor (30, calendar days or working days), PF wage definition, PT slab and TDS depend on your policy, state and tax rules.
PF, ESI, PT and TDS in the calculation
PF: 12% of PF wages for the employee, with PF wages often capped at ₹15,000 unless higher wages are opted. See PF calculation on salary. ESI: 0.75% of gross wages if gross is within ₹21,000. See ESI calculation. Professional Tax: state slab by gross wages. See PT by state. TDS: projected annual tax spread over months. See TDS on salary.
Common mistakes
- Using a different per-day divisor for different employees
- Forgetting to include overtime or arrears in the month earned
- Applying PF to the wrong wage base
- Using last year's PT slab
- Ignoring a mid-month joiner or leaver
Software removes these by applying one rule set to everyone. See salary calculation software.
Related guides: Payroll Software in India (complete guide)
Salary Calculation SoftwarePF Payroll SoftwareTDS Payroll SoftwarePF Calculation on Salary: Complete GuideESI Calculation in IndiaSalary Slip / Payslip: Complete Guide
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