How to Read a Salary Structure: CTC, Gross Pay, Net Pay, PF, ESI and PT
Understand the difference between CTC, gross salary and take-home pay, and how Provident Fund, ESI, Professional Tax and TDS are deducted — with a worked monthly payroll example.
By Ledgermint Editorial Team · · 2 min read
Key takeaways
- CTC is the total annual cost to the employer, including employer contributions; gross salary is what is paid before employee deductions; net pay is take-home.
- Employee and employer each contribute 12% of PF wages to Provident Fund (commonly on wages capped at ₹15,000 a month).
- ESI applies to employees earning up to ₹21,000 a month: 0.75% from the employee and 3.25% from the employer.
- Professional Tax is a state levy — in Telangana it is ₹200 a month for salaries above ₹20,000.
- TDS on salary is deducted monthly based on projected annual tax.
Offer letters quote a CTC, but the amount that reaches your bank account is lower. Payroll teams — and anyone preparing a salary statement — must be able to explain every rupee of that difference.
CTC, gross and net — the three numbers
- CTC (cost to company): everything the employer spends on you in a year — gross salary plus the employer's PF and ESI contributions, and often gratuity and other benefits.
- Gross salary: the total of your earnings components (basic, HRA, allowances) before employee deductions.
- Net salary (take-home): gross salary minus employee PF, ESI, Professional Tax, TDS and any other deductions.
Statutory deductions explained
Provident Fund (PF)
Under the EPF scheme, the employee contributes 12% of PF wages (basic + dearness allowance), and the employer contributes another 12%. Many employers calculate contributions on wages capped at ₹15,000 a month, the statutory wage ceiling.
Employees' State Insurance (ESI)
ESI applies where an employee's gross wages are up to ₹21,000 a month. The employee contributes 0.75% and the employer 3.25% of gross wages.
Professional Tax (PT)
PT is levied by state governments, so slabs vary. In Telangana, salaries up to ₹15,000 a month are exempt, ₹15,001–₹20,000 pay ₹150, and salaries above ₹20,000 pay ₹200 a month.
TDS on salary
The employer estimates the employee's annual taxable income under the chosen regime, computes the annual tax, and deducts it in monthly instalments.
Worked example: monthly payroll for a ₹4.2 lakh CTC
| Component | Monthly (₹) |
|---|---|
| Basic salary | 17,500 |
| House rent allowance (HRA) | 7,000 |
| Special allowance | 8,700 |
| Gross salary | 33,200 |
| Employer PF (12% of ₹15,000) | 1,800 |
| Monthly CTC | 35,000 |
| Less: employee PF (12% of ₹15,000) | 1,800 |
| Less: Professional Tax (Telangana) | 200 |
| Less: ESI | Not applicable (gross above ₹21,000) |
| Less: TDS | Nil (annual income within the new-regime rebate limit) |
| Net take-home | 31,200 |
This simplified example excludes gratuity, bonus and other benefits that some employers include in CTC.
Labour codes and the definition of “wages”
India's four labour codes, brought into force in November 2025, introduce a common definition of wages. Broadly, if allowances exceed 50% of total remuneration, the excess is treated as wages for computing benefits such as PF and gratuity. Many employers restructured salaries so that basic pay is at least half of the total. Check how your organisation applies these rules when preparing salary statements.
Contribution rates, ceilings and PT slabs are set by law and state notifications and can change. Verify current values before processing payroll.
Frequently asked questions
What is the difference between CTC and take-home salary?
How much PF is deducted from salary?
Who is covered under ESI?
Learn this hands-on
- Payroll or Salary Statement — Beginner, 30 hours, ₹2,000
- PF & ESI Return Filing — Intermediate, 30 hours, ₹3,500
- TDS Computation — Intermediate, 30 hours, ₹3,000
This article is for general education and is not tax, legal or investment advice. Laws and rates change — confirm current rules with official sources or a qualified professional.