How CTC is Structured
Cost to Company (CTC) is a term heavily used by Indian companies. It represents the total amount the company intends to spend on you in a year. Here is how a standard Indian CTC is divided:
| Component | Typical Percentage | Description |
|---|---|---|
| Basic Salary | 40% to 50% of CTC | The core of your salary. Most other components (like PF and Gratuity) are calculated as a percentage of your Basic. It is fully taxable. |
| HRA (House Rent Allowance) | 40% to 50% of Basic | Provided to meet rental expenses. Can offer tax exemptions under the Old Tax Regime if you live in a rented house. |
| Special Allowance | Remaining Balance | The "balancing figure" used to make up the rest of your gross salary. It is fully taxable under both regimes. |
| Employer PF | 12% of Basic | The company's contribution to your retirement fund. It is part of your CTC but not part of your take-home pay. |
| Gratuity | 4.81% of Basic | A lump sum payout given if you stay with the company for 5 continuous years. Deducted from your CTC annually. |
New Tax Regime Slabs (FY 2026-27)
The New Tax Regime is the default tax system for salaried taxpayers. It offers lower slab rates, a standard deduction of Rs 75,000, and rebate support for lower taxable incomes, but it does not allow most traditional deductions like Section 80C and HRA exemptions.
- Standard Deduction: A flat ₹75,000 deduction is available to all salaried employees.
- Section 87A Rebate: Tax becomes zero when taxable income is up to ₹12,00,000 under the new regime. For many salaried employees, this translates to gross income up to around ₹12,75,000 after standard deduction.
- Marginal Relief: If your taxable income is just above the rebate threshold, the extra tax should not exceed the extra income above the threshold.
| Income Bracket | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil (0%) |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
* A 4% Health and Education Cess is added to the calculated tax amount.
Old Tax Regime Slabs
The Old Tax Regime allows many deductions and exemptions, making it useful for salaried people with heavy investments, high house rent, home-loan interest, or other eligible tax-saving claims.
- Standard Deduction: A flat ₹50,000 deduction is available.
- Section 80C Limit: Maximum deduction of ₹1,50,000 for investments like EPF, PPF, ELSS, and Life Insurance.
- Section 87A Rebate: If your taxable income (after all deductions) is up to ₹5,00,000, your tax liability becomes zero.
| Income Bracket | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil (0%) |
| ₹2,50,001 to ₹5,00,000 | 5% |
| ₹5,00,001 to ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Employee Provident Fund (EPF) Rules
EPF is a mandatory retirement savings scheme governed by the Employees' Provident Fund Organisation (EPFO).
- Both you (the employee) and your employer contribute 12% of your Basic Salary to this fund.
- The employer's contribution is usually counted as a part of your CTC.
- The employee's contribution is deducted directly from your Gross Salary every month.
- Contributions are usually capped at 12% of ₹15,000 (which is ₹1,800 per month or ₹21,600 per year), though companies may choose to contribute more based on total Basic pay.
- EPF deposits earn a government-mandated interest rate, entirely tax-free up to certain limits.
Professional Tax by State
Professional Tax (PT) is a direct tax levied by state governments. Not all states charge this tax. The maximum amount any state can charge is capped at ₹2,500 per year.
| State | Maximum Annual Amount (₹) |
|---|---|
| Maharashtra | 2,500 |
| Karnataka | 2,400 |
| West Bengal | 2,500 |
| Andhra Pradesh | 2,500 |
| Tamil Nadu | 2,500 |
| Telangana | 2,500 |
| Gujarat | 2,400 |
| Delhi | Nil (Not applicable) |
| Rajasthan | Nil (Not applicable) |
| Uttar Pradesh | Nil (Not applicable) |
Which Regime Should You Choose?
Making the right choice depends entirely on your spending and investment habits.
- Choose the New Regime if: You are a young professional with a starting salary, do not pay rent (or don't have valid rent receipts), and prefer not to lock your money into long-term tax-saving investments like PPF or ELSS.
- Choose the Old Regime if: You are actively utilizing Section 80C (₹1.5 Lakh limit), paying significant house rent (HRA exemption), paying health insurance premiums for yourself and senior citizen parents, or paying interest on a home loan.
The golden rule: Always compare both regimes using our CTC Calculator, then validate the result against your actual exemptions, payslip, payroll portal, or tax adviser before filing or final declaration.