What is CTC? Tax Year 2026–27
Cost to Company is the total your employer spends on employing you in a year. Several parts of it never pass through your hands, which is why the number on your offer letter feels so different from the one in your bank account.
Recruiters quote CTC because it is the largest defensible number. It includes your salary, but also money your employer contributes on your behalf, provisions they book against future payments, and benefits they buy for you.
None of that is wrong. It is genuinely what you cost. It is just not what you earn.
A real ₹12 lakh breakup
Here is a ₹12,00,000 CTC on a typical private-sector structure: Basic at half of CTC, PF at the statutory ceiling, a gratuity provision inside the package.
| Component | Annual | Reaches your bank account? |
|---|---|---|
| Basic salary | ₹6,00,000 | Yes, after deductions |
| House Rent Allowance | ₹2,40,000 | Yes, after deductions |
| Special allowance and other pay | ₹3,09,540 | Yes, after deductions |
| Gross salary | ₹11,49,540 | This is the salary part |
| Employer's PF contribution | ₹21,600 | No. Goes to your EPF and pension account |
| Gratuity provision | ₹28,860 | No. Only if you complete five years |
| Total CTC | ₹12,00,000 |
So ₹50,460 of that ₹12 lakh (4.2%) is real money your employer spends that never appears as salary. Then income tax, your own PF and Professional Tax come out of the gross figure, leaving about ₹93,787 a month.
What employers put inside CTC
- Basic salary. The anchor. PF, gratuity and your HRA exemption are all calculated from it.
- Dearness Allowance. Standard in government and PSU pay structures, rare in the private sector.
- House Rent Allowance. Cash in hand, and partly exempt from tax under the old regime if you actually pay rent.
- Special allowance. The balancing figure. Whatever is left after the other components are set.
- Variable pay or performance bonus. Counted in full in your CTC, paid only if targets are met.
- Employer's PF contribution. 12% of the PF wage, into your account rather than your salary.
- Gratuity provision. Commonly 4.81% of Basic, against a payment you receive only after five years.
- Insurance and benefits. Group health cover, life cover, meal cards, sometimes even the cost of your laptop.
Two ₹15 lakh offers are not the same offer
Because employers choose how to fill that list, identical CTCs can pay very differently. One employer counts group insurance and a gratuity provision inside the number; another does not. One caps PF at ₹15,000; another charges 12% of your whole Basic. One makes 20% of the package variable.
Every one of those choices moves your monthly salary without moving the CTC. When you are comparing offers, ask for the salary structure, not just the headline.
Common questions
Is CTC the same as gross salary?
No. Gross salary is what your offer letter’s salary table adds up to. CTC is gross salary plus employer-side costs, their PF contribution, a gratuity provision, insurance. On a typical structure CTC is 4–8% higher than gross.
Should I negotiate on CTC or on take-home?
Negotiate on CTC because that is the currency employers work in, but evaluate on take-home. Ask for the salary structure before accepting, and run it through a calculator. A lower CTC with a better structure can genuinely pay more each month.
Is variable pay part of CTC?
Yes, at 100% of target, even though most people receive less than that most years. If 20% of your CTC is variable, your monthly salary is being calculated on the other 80%.
Related
Written by Divya Akash Dutta. Published 18 August 2026. Last reviewed 18 August 2026 for Tax Year 2026–27.