TL;DR: A standard Indian payslip has earnings (basic, HRA, special allowance, perks) and deductions (PF, professional tax, income tax, TDS). The "take-home" is what hits your bank. Most people don't realize: the CTC includes employer PF and gratuity that never appears in your bank. Use our salary calculator to model changes.
The 6 numbers on a payslip that actually matter
Your payslip might have 20+ line items, but only 6 affect your take-home and tax:
| Item | Where it appears | What it is |
|---|---|---|
| Basic Salary | Earnings | Fixed % of CTC, base for PF, HRA, gratuity |
| HRA | Earnings | House Rent Allowance, partially tax-exempt |
| Special Allowance | Earnings | Catch-all to make up the rest of CTC |
| Employee PF | Deductions | 12% of basic, goes to your EPF account |
| Professional Tax | Deductions | State-level tax (₹200-300/month) |
| TDS / Income Tax | Deductions | Tax deducted at source, varies by regime |
Everything else on the payslip is either: - Sub-components of the above (e.g., "Conveyance Allowance" is part of Special Allowance) - Employer-side items (employer PF, gratuity accrual) — these don't reduce your take-home - Year-end adjustments (arrears, bonus)
Earnings side: what's in your CTC
A typical CTC structure (₹12 LPA example):
Basic Salary: ₹3,00,000/year (₹25,000/month) - Usually 25-40% of CTC - The base for PF, gratuity, HRA - Most "important" line item for tax calculations
HRA: ₹1,50,000/year (₹12,500/month) - Calculated as 40-50% of basic (50% for metros, 40% for non-metros) - Tax-exempt if you pay rent and claim HRA exemption - Goes fully into your bank account
Special Allowance: ₹2,70,000/year (₹22,500/month) - The remainder of CTC after basic, HRA, employer PF, gratuity - Fully taxable - Goes fully into your bank account
Other allowances (if any): - Conveyance allowance: ₹19,200/year (₹1,600/month) — tax-free up to ₹1,600/month - Medical allowance: ₹15,000/year — tax-free up to ₹15,000/year - LTA: paid once a year if you travel, tax-free with bills - Telephone/internet: varies, tax-free if reasonable - Meal coupons: ₹26,400/year — tax-free
The sum of basic + HRA + special + allowances = your gross salary (₹5,80,000 in this example).
Deductions: what comes out before your bank credit
Employee PF: ₹43,200/year (₹3,600/month) - 12% of basic salary - Goes to your EPF account (Vardan PF number, shown on payslip) - Visible deduction, but you "own" this money — it stays in your EPF - Not actually lost, just locked
Professional Tax: ₹2,500/year (₹200/month) - State-level tax (Karnataka ₹200, Maharashtra ₹200, others vary) - Slab-based: some states have 0 for low income - Smallest deduction, but mandatory
Income Tax / TDS: varies - Monthly TDS based on your projected annual income - New regime: 0% up to ₹7.5L, 10% ₹7.5-10L, 15% ₹10-15L, 20% ₹15-20L, 30% above - Old regime: 0% up to ₹5L, 20% ₹5-10L, 30% above (with 80C, 80D deductions) - Adjusted based on regime you opt for
For our ₹12 LPA example: - New regime: ~₹3,000-4,000/month TDS - Old regime: ~₹2,000-3,000/month TDS (if you claim HRA, 80C, 80D)
Other deductions (if applicable): - ESI: 0.75% of gross, only if gross < ₹21,000/month - Recovery of advance/loan: only if your employer gave you an advance - Salary in arrears: only if back-dated payments
What actually hits your bank
Take-home = Gross salary − Employee PF − Professional Tax − TDS
For the ₹12 LPA example: - Gross: ₹48,333/month - Employee PF: ₹3,600 - Professional Tax: ₹200 - TDS: ₹3,500 (new regime) - Take-home: ₹41,033/month
This is what gets credited. Annual take-home: ₹4,92,400 — not ₹12 lakh.
The rest of the ₹12 LPA CTC is in: - Employer PF: ₹3,600/month (goes to your EPF, you can access after retirement) - Gratuity: ₹1,200/month accrued (paid after 5 years) - Insurance: ₹1,000/month (covers you, non-cash) - Total "invisible" components: ~₹5,800/month
What you DON'T see on the payslip
These are part of your CTC but don't appear as line items:
Employer PF contribution: ₹3,600/month - 12% of basic, same as your PF - Goes to your EPF account - Not deducted from your salary (employer pays separately) - Effectively part of your retirement savings
Gratuity: ~₹1,200/month - 4.81% of basic - Accrues in a separate fund - Paid out only after 5 years of continuous service - For most job-hoppers, never paid
Insurance premium: ~₹1,000/month - Group health insurance + sometimes life - Employer pays directly - Real value but not cash
ESOP/Stock: variable - If your company offers equity - Vesting schedule (usually 4 years with 1-year cliff) - Only worth something if the company does well
How to spot errors on your payslip
Common mistakes:
1. Wrong basic salary — if the basic changed in your offer letter but not in the payslip, ask HR. This affects PF, gratuity, and HRA calculations.
2. Wrong PF deduction — should be 12% of basic, capped at ₹1,800/month for basic up to ₹15,000. If your basic is higher, the cap applies.
3. Missing allowances — if your offer letter mentions conveyance but it's not in the payslip, HR may be combining it into Special Allowance (which is still legal but changes your tax math).
4. Wrong TDS — too high = you're giving the government an interest-free loan until refund. Too low = tax demand notice at year-end.
5. Professional tax wrong — should match your state's slab. Karnataka is ₹200, Maharashtra is ₹200, West Bengal varies. Check if you're being charged the right state.
6. Double deductions — sometimes a deduction appears twice due to a payroll system bug. Compare month-over-month.
The tax math on the payslip
The TDS on your payslip is estimated. The actual tax you owe is calculated on your annual income at year-end (when you file ITR). Three things can cause over- or under-deduction:
1. Income changed mid-year You got a raise in October. Your TDS will only reflect the higher income for the remaining months, leading to a tax shortfall.
2. Deductions weren't factored in (old regime) You started claiming HRA or made 80C investments mid-year, but the payroll system didn't update your projected tax. Result: over-deduction.
3. Multiple income sources You have a salary + freelance income + interest. The TDS only covers salary, not the rest. You'll owe tax on the rest at year-end.
The fix: declare your actual income and deductions to your employer at the start of the year (Form 12BB for old regime). The payroll will deduct the right TDS.
How to calculate your actual annual tax
- Take your gross annual salary (CTC minus employer PF, gratuity, insurance)
- Subtract standard deduction (₹75,000 for new regime, ₹50,000 for old)
- For old regime, subtract 80C (up to ₹1.5L), 80D (up to ₹25K), HRA exemption, LTA, NPS
- The remaining is your taxable income
- Apply tax slabs (old or new)
- Add 4% cess
- That's your annual tax liability
- Compare to actual TDS deducted — that's your refund or shortfall
For our ₹12 LPA example: - Gross: ₹7,20,000 (after employer PF and gratuity removed) - Less standard deduction (new regime): ₹75,000 - Taxable: ₹6,45,000 - New regime tax: 0 (below ₹7.5L threshold, plus ₹25K rebate under 87A) - Actual TDS: ₹42,000/year - Refund due: ₹42,000 at ITR filing
Many employees discover this refund only when they file ITR in July. Don't miss it.
What to do at year-end (March-April)
- Collect all payslips for the financial year (April-March)
- Calculate actual tax liability using the steps above
- File ITR-1 (or ITR-2 if you have other income) by July 31
- Verify TDS matches Form 26AS (download from income tax portal)
- Claim refund if TDS > actual tax (most common)
- Pay shortfall if TDS < actual tax (with interest)
Most Indians over-deduct by ₹10-50K/year and don't claim the refund. Don't be that person.
What to do BEFORE accepting a new offer
Don't trust the headline CTC. Always ask for: - Gross monthly take-home - Basic salary (for PF math) - HRA structure - Employer PF contribution - Insurance coverage - ESOP grant size and vesting - Any "one-time" components (signing bonus, relocation, retention bonus)
Then run the numbers through our salary calculator with the actual structure. The difference between two "₹15 LPA" offers can be ₹1.5 lakh/year in take-home.
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