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Check How to Calculate Take Home Salary with an Example

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May 3, 2022


What’s Inside

“INR xxxxx credited to a/c no. xxx6789 on 31/03/22. Info-Payment SALARY. Avl Balance INR xxxxxx.” 

Tell me a better feeling than this?  I’ll wait for an answer.

What is meant by take-home salary?

Before we dive into the meme-verse, let's understand what we mean by a take-home salary? Isn't your salary meant to be taken home? Are we getting this wrong?

Well, 'take-home' or 'in-hand' salary essentially refers to the amount of money you'll actually get after the tax cuts. Often, you will hear of the term CTC, or Cost to Company. Usually, when you get offered a job, your recruiter tells you the salary you will be paid before taxes. This amount is what you cost the company. Let's say, the HR offers you a ₹12 lakh package, this means it costs the company ₹12 lakhs per year to hire you. However, while they transfer this amount to your bank account, they deduct the tax and only then deposit this money. This money deposited in your account is your take-home.

That payday moment

Why you should know your take-home salary breakup

Now that you're familiar with CTC as a concept, understanding your take-home salary will help you see if your CTC is inflated. This can happen if the components are disproportionately higher than your basic salary. Most employers put a cap of 40% on the basic salary compared to the overall CTC for non-metro cities and 50% for the metros, but there’s no actual rule written in stone for this.

But hold on, what is a basic component? What is metro and non-metro. Let'd dive in:

Enjoy this relatable meme

Components of a salary at the CTC stage

Here's a list of the different components in your salary:

Basic Salary

This is the actual taxable part of your salary. In principle, it is what the company pays you for doing your job. All the other components, in some sense, are benefits of working for the company.

Provident Fund (PF)

This is a component of your salary mandated by the government. Essentially, the company parks aside some money into a government-managed fund every month. This amount is meant to tide you through any emergencies in case you have no other savings, or if there are family members dependent on your income


This should be self explanatory. Your salary might have a pension component which your company parks aside for you on a monthly basis.

House Rent Allowance (HRA)

This one's a government mandate too. Your employer is supposed to help you cover your living costs, and a part of this amount is tax-exempt, depending on where you live. You could use this HRA calculator to check how much tax you actually save.

Leave Travel Allowance (LTA)

This component of your salary is to help you cover your travel expenses when you're on leave. This amount is reimbursable (you'll have to furnish proof of travel) and is capped by your employer.

Medical Allowance

Much like LTA and other allowances, this is to cover your medical expenses, provided you furnish proof of bills.

Conveyance Allowance

Like the name suggests, this allowance helps you cover your commuting costs to and from work. This is of course capped. And doesn't mean you can take an Uber at 2x pricing and hope that your company will get it. 😉

Other Allowances

Certain companies also give you some other allowances that are reimbursable up to a limit. Some of these could be:

  1. Entertainment allowance
  2. Dearness allowance
  3. Work From Home Furniture allowance
Dr Strange meme showing the components of Salary structure in India

Why your take-home salary is less than CTC?

Remember that packet of chips you recently bought? How much of it was air? And second question - does it remind you of your salary? Relatable, right? Simply put, your CTC includes your Tax components which get deducted before your salary is sent to you.

I felt this one

How to calculate take home salary?

A high CTC may appear great, but if it results in a low net salary per month, then you need to take a closer look. Here's how to calculate take home salary from your CTC: 

Net Salary = 

CTC – Deductibles & Retirals (Professional Tax + Provident Fund + Income Tax + Gratuity + Pension + Variable)*

In the modern corporate setup, the CTC may also include a percentage amount as a variable that is paid out quarterly or annually. Most realists, like me, prefer to not include such variable amounts as part of take-home salary due to the, well, variability of its payment.

Here is a table of a sample CTC breakup to further illustrate the calculation of take-home salary.

Now, as per the CTC (fixed) the monthly take-home salary should be ₹94,700. However, using the formula mentioned earlier and deducting all the relevant components (PF, Gratuity, TDS etc.), the actual take-home becomes ₹77,466 per month. This amounts to a Take Home to CTC ratio of around 82%. If this ratio drops to below 75, it warrants a closer relook of your current salary structure.

Speaking of deductions, what is TDS?

It may not be a far stretch to compare TDS (Tax Deducted at Source) with Thanos. Like any other supervillain, TDS has a motive (giving back to the country), it's powerful, and can attack in different forms.

Alright, memes aside, TDS is a financial obligation by the employer and is deducted based on your individual income tax rate or slab, which is then deposited with the government. In this case, form 16 is the one-stop document that contains all the details of payments made and total deductions for and on your behalf in the financial year.

And what about PF?

This is the next item you’ll find in the deductions section of your salary slip. Provident Fund, PF, is like the wise old uncle you may not always like, yet makes a lot of sense. While it is an amount that is deducted from your monthly salary at 12% of your basic salary, it is deposited on your behalf in your EPFO (Employee Provident Fund Organisation) account. With the power of compound interest in excess of 8% per annum, you can hope to build a sizeable retirement corpus over the course of time.

More about employee benefits:

While monetary benefits rule, not everything beneficial needs to be tangible. Most companies offer different sorts of benefits for the well-being of their employees. Some of these can be in the form of:

  • Group Medical Insurance for self and dependents
  • Free Access to online healthcare apps and services
  • Reimbursable Benefits like HSIA wifi connection, UPS or ergonomic chairs for efficient WFH, petrol or travel expenses etc.
  • Option to Purchase Company Stock via ESOPs (Employee Stock Ownership Plan), RSUs (Restricted Stock Units), or Employee Stock Purchase Plan (ESPP)

So now you know why there is a lesser in-hand salary  than you think and why it’s important know the reasons. The next time you discuss CTC and salary with any prospective employer, keep my friend Bernie’s message in mind.


1. How do I calculate my take-home pay from my salary?

Your take-home salary is essentially subtracting the following 4 components from your gross salary:

  • Income tax
  • PF contribution
  • Professional tax

You’ll be able to find the exact amounts for each of these on your offer letter or your monthly pay slip. 

2. Is CTC the same as take-home salary?

CTC and take-home salary are different. CTC stands for Cost to Company. This is how much it costs your employer to hire you, although the amount of money you may actually get will depend on the income tax slab you fall under (if you’ve opted for the Old Tax Regime) and various deductions like your PF contribution, and professional tax. Generally, while negotiating your salary in a new job, the recruiting manager usually tells you your salary in terms of CTC, and not how much you’ll actually get in-hand. This is why it’s essential to work out your take-home pay before deciding to take a job offer or not.

3. What does a CTC salary breakup look like?

Most salary structures typically have the following components:

  • Basic salary: this is usually about 35% of your total compensation. 
  • HRA or House Rent Allowance: This is the money your company is paying you to cover your rent expenses
  • LTA or Leave Travel Allowance: This component of your salary is given to you to cover expenses incurred when you travel on leave
  • PF or Provident Fund: This is mandated by the government, and requires both you and your employer to make this contribution. This amount is tax deductible under the 80C section of the Income Tax Act.
  • Professional Tax: This is collected by the state government, and has a cap of ₹2500

4. What is the ideal salary breakup?

Ideal salary breakups can differ based on individual needs, industry, job role and more. But a standard breakup must have the following -

  1. Base Salary
  2. Benefits
  3. Bonuses
  4. Stock Options
  5. Allowances

5. What is CTC salary structure?

CTC stands for Cost-to-Company, and it refers to the total cost incurred by a company in employing a person. The CTC structure is generally broken down into a components that include all the benefits, allowances, and perks that an employee receives as part of employee compensation.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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