Understanding your CTC: Basic, HRA, PF and take-home pay explained
"Why is my take-home so much less than my CTC?" is one of the most common questions in Indian workplaces — from both new joiners and the HR teams who answer them. The confusion comes from three different numbers that often get used interchangeably: CTC, gross salary, and net (take-home) pay. Here's how they actually fit together.
CTC vs gross vs net
- CTC (Cost to Company) is the total a company spends on you in a year — including parts you never see in your bank account, like the employer's PF contribution and gratuity.
- Gross salary is your earnings before deductions (Basic + allowances).
- Net / take-home is what actually lands in your account after PF, professional tax and TDS come out.
So take-home is always lower than CTC — by design.
The components of a typical salary structure
A conventional Indian CTC is built from a few standard pieces:
| Component | Typical basis |
|---|---|
| Basic Pay | ~40% of CTC — the anchor everything else is calculated from |
| House Rent Allowance (HRA) | ~50% of Basic — partly tax-exempt if you pay rent |
| Conveyance / Special Allowance | The balancing amount to reach gross |
| Employer PF | 12% of Basic — part of CTC, but paid into your PF, not your bank |
| Gratuity | Accrues over time; payable after 5 years of service |
Because Basic drives PF, HRA and gratuity, its size has real consequences — a higher Basic means more retirement savings but a slightly lower monthly take-home.
What gets deducted
From your gross, three things typically come out each month:
- Employee PF — 12% of Basic, into your own retirement account.
- Professional Tax — a small state levy (around ₹200/month where applicable).
- TDS — income tax, spread across the year based on your projected annual income and regime.
If you have unpaid leave, loss of pay is prorated on your per-day salary too.
A quick example
On a ₹12,00,000 annual CTC, a standard structure works out to roughly: Basic ₹4,80,000, HRA ₹2,40,000, a small conveyance component, employer PF ₹57,600, and the rest as special allowance. The employee's monthly deductions (PF + PT + any TDS) then determine take-home — which is why the number on your payslip is lower than the headline on your offer letter, even though nothing is "missing."
Why employers should get the structure right
A well-designed salary structure balances tax efficiency for the employee with compliance for the company. Getting Basic, HRA and allowances right affects PF contributions, HRA exemptions, and gratuity liability.
NayaHR generates a compliant Indian salary structure automatically from a single CTC figure — Basic, HRA, conveyance, special allowance and employer PF — and shows both employer cost and employee take-home on every payslip, so there are no surprises for either side.
Run your whole people operation in one place
NayaHR is the AI-native HRIS for Indian SMBs — Core HR, payroll, recruitment, performance and more. Start free.
Get started →This article is general information for Indian SMBs, not legal, tax or financial advice. Verify statutory rates and rules with a qualified professional.