How to Calculate Salary in India: CTC, Gross and Net Pay Explained (2026)
A step-by-step guide to turning CTC into gross and in-hand salary in India — with PF on the ₹25,000 ceiling, ESI, Professional Tax, TDS and a worked example.
pagar karo Payroll Desk· Published 20 Oct 2026· Updated 28 Oct 2026· 4 min readNet (in-hand) salary = gross salary − employee PF − employee ESI − Professional Tax − income tax (TDS) − other deductions. Gross salary = CTC − employer PF − employer ESI − gratuity and other employer-only costs. For a ₹4.8 lakh CTC with 50% Basic, the in-hand pay is roughly ₹35,000 a month in Gujarat under the new tax regime.
- CTC is the employer’s total cost; gross is what the employee earns before deductions; net is what reaches the bank.
- Since the Labour Codes, at least 50% of total remuneration must count as “wages” for PF, ESI and gratuity.
- The EPF wage ceiling is ₹25,000 a month from 17 September 2026, so restricted PF is at most ₹3,000 from each side.
- Pro-rate fixed pay for loss-of-pay days using a consistent month basis (calendar days, 30 or 26).
CTC, gross and net: the three numbers
Every salary conversation in India mixes up three different numbers:
- CTC (cost to company) — everything the employer spends on the person in a year: salary, employer PF, employer ESI, gratuity provision, insurance, sometimes bonus.
- Gross salary — the total earnings that appear on the payslip before any deductions.
- Net or in-hand salary — what actually lands in the bank account.
Step 1: Build the salary structure
A typical structure for a small business has three or four lines:
| Component | Common rule | Why |
|---|---|---|
| Basic (+ DA) | 40–50% of gross | Base for PF, gratuity and many allowances |
| HRA | 40% (non-metro) or 50% (metro) of Basic | Can be tax-exempt in the old regime |
| Special allowance | Whatever balances to gross | Absorbs rounding and revisions |
Step 2: Take out employer costs to get gross
If employer PF is part of CTC, it is 12% of PF wages — and most employers restrict PF wages to the ceiling, which is ₹25,000 a month from 17 September 2026 (₹15,000 before). Employer ESI is 3.25% when gross wages are ₹21,000 or less. Gratuity provision is commonly 4.81% of Basic (15/26 of a month’s Basic per year ÷ 12).
Worked example: ₹4.8 lakh CTC in Gujarat
Annual CTC ₹4,80,000 → monthly CTC ₹40,000. Basic is 50% of gross, HRA 40% of Basic, employer PF included in CTC, PF wages capped at ₹25,000, no gratuity in CTC.
| Line | Monthly (₹) |
|---|---|
| Monthly CTC | 40,000 |
| Employer PF (12% of Basic ₹18,868) | −2,264 |
| Gross salary | 37,736 |
| Basic (50%) / HRA (40% of Basic) / Special | 18,868 / 7,547 / 11,321 |
| Employee PF (12% of ₹18,868) | −2,264 |
| ESI | Not covered (gross above ₹21,000) |
| Professional Tax (Gujarat) | −200 |
| TDS (new regime: ₹4.53 lakh gross − ₹75,000 standard deduction → under the ₹12 lakh rebate) | 0 |
| In-hand salary | ≈ 35,272 |
Try your own numbers in our in-hand salary calculator.
Step 3: Pro-rate for payable days
When someone joins mid-month or takes unpaid leave, fixed pay is pro-rated:
The month basis is a policy choice: calendar days (28–31), a fixed 30, or 26 working days. Pick one, write it in the policy, and apply it to everyone on that structure. Overtime and fines are usually priced from a daily or hourly rate derived the same way.
Step 4: Employee deductions
- Employee PF: 12% of PF wages (restricted to ₹25,000 unless you contribute on actual wages).
- Employee ESI: 0.75% of gross if gross ≤ ₹21,000 (see our ESI guide).
- Professional Tax: state slabs, up to ₹2,500 a year (see the PT & LWF guide).
- TDS: projected annual tax spread over the remaining months (see TDS on salary).
- Loan EMIs, advances, fines as recorded.
Common mistakes
- Calculating PF on full Basic when the policy is to restrict to the ceiling (or the other way round).
- Keeping Basic at 30% and forgetting the 50% wage rule.
- Changing the month basis from month to month.
- Deducting TDS in one go in March instead of spreading it.
- Not keeping a calculation trail — the reason most salary disputes drag on.
pagar karo shows a “View calculation” trace for every line on every payslip, so both you and the employee can see exactly how the number was reached.
Frequently asked questions
Is employer PF part of CTC?
Usually yes. Most Indian employers include the employer’s 12% PF contribution (and employer ESI, if applicable) in CTC, which is why gross salary is lower than CTC/12.
What is the difference between gross salary and take-home?
Gross salary is the total of all earnings for the month before deductions. Take-home (net) is gross minus employee PF, ESI, Professional Tax, TDS, loan EMIs, advances and any other deductions.
How is salary calculated for absent days?
Monthly salary is divided by the month basis (calendar days, a fixed 30, or 26 working days) and multiplied by payable days. Unpaid absences are loss of pay (LOP).
This guide is general information for employers in India, checked against the sources above on 28 Oct 2026. Rules and rates change — confirm with your CA or the official notification before acting.