Introduction
In India, ₹5 LPA (₹5,00,000 per annum) is a good start for freshers. But the number on the offer letters doesn’t reflect what you actually get in your bank account each month.
This difference is due to the CTC vs. hand salary concept. Employers use the CTC to include several components you won’t actually see coming in.
Income tax, employee provident fund (EPF), professional tax, and other deductions cause a decrease in your actual take-home pay. Having an in-hand salary becomes all the more important with 2025’s tax rules (Old vs New Regime).
What is CTC?
CTC or Cost to Company is the amount a company spends by hiring an employee for a year.
It comprises your basic salary, house rent allowance (HRA), special allowances, employer’s contribution to PF, gratuity, and bonus. Although it sounds appealing, not all of it arrives as cash.
So, your CTC is different from your monthly salary. It is a bundle that also comes with numerous indirect benefits and statutory deductions.
Realistic Salary Structure for 5 LPA (CTC)
| Component | Monthly (₹) | Annual (₹) |
| Basic Salary | ₹20,833 | ₹2,50,000 |
| House Rent Allowance (HRA) | ₹8,333 | ₹1,00,000 |
| Special Allowance | ₹6,667 | ₹80,000 |
| Provident Fund (Employer) | ₹2,500 | ₹30,000 |
| Gratuity | ₹1,000 | ₹12,000 |
| Bonus (Performance/Variable) | ₹2,083 | ₹25,000 |
| Total CTC | ₹41,416 | ₹4,97,000 |
Understanding Salary Components
For companies and employees in India, it’s crucial to understand salary components. Here’s a closer look at the main parts:
Basic Salary
Definition: The main part of an employee’s salary, which constitutes a part of most of the CTC portion between 35-50%
Taxability: Fully taxable.
Calculation: Based on employee designation, industry practices and company budget.
House Rent Allowance (HRA):
Partly taxable or fully taxable depending on the city in which the rent is paid.
Provident Fund (PF)
Definition: Both the employer and employee contribute 12% of the basic salary to the retirement savings plan.
Gratuity
Definition: A terminal benefit that pays out after a minimum period of five years of continuous service.
Tax: Tax-free to a certain amount
Variable Pay:
Paid quarterly/yearly; may or may not be fixed monthly.
With an understanding of these components, employees can budget better and plan for tax savings. “So knowing that employers use these things to structure salaries that are legally compliant to attract and retain talent.
Deductions Applicable
The following table illustrates typical deductions under the Old Tax Regime:
| Deduction Type | Monthly (₹) | Annual (₹) |
| Employee PF (12% Basic) | ₹2,500 | ₹30,000 |
| Professional Tax | ₹200 | ₹2,400 |
| TDS/Income Tax | ₹1,800 | ₹21,600 |
| Total Deductions | ₹4,500–₹5,000 | ₹54,000–₹60,000 |
In-Hand Salary Calculation
Here’s how your in-hand salary is calculated:
| Details | Monthly (₹) | Annual (₹) |
| Gross Monthly Salary | ₹41,416 | ₹4,97,000 |
| Less: Total Deductions | ₹5,000 (approx.) | ₹60,000 (approx.) |
| In-Hand Salary | ₹36,416 | ₹4,37,000 |
New Tax Regime vs Old Tax Regime Comparison
The tax rules for 2025 give us two options: Old and New Regime. Let us understand both and how they impact a ₹5 LPA salary.
Income Tax Payable Comparison – FY 2025
| Regime | Gross Income (₹) | Deductions (₹) | Tax Payable (₹) | Net In-Hand Yearly (₹) |
| Old Regime | ₹5,00,000 | ₹1,50,000 (80C etc.) | ₹0 (after rebate) | ₹4,40,000–₹4,50,000 |
| New Regime | ₹5,00,000 | ₹0 | ₹0 (rebate applicable) | ₹4,45,000–₹4,50,000 |
Old Regime demands investments to receive deductions, while both regimes give full tax rebates under Section 87A, so taxable income is way less than ₹7,00,000.
How to Increase In-Hand Salary
The in-hand salary can be increased by following a few steps. Here are a few specific strategies that can help you improve your take-home pay:
Maximize Tax Deductions
Section 80C: You can invest up to ₹1.5 lakh in eligible tax-saving instruments such as a PPF, ELSS, or NSC, which can help reduce your taxable income.
Section 80D: Get deductions on health insurance premiums.
Section 80CCD (1B): Additional NPS deductions
Consider Salary Restructuring
Allowances Over Basic Pay: Increase reduction of taxable income by increasing tax-free/partially taxable allowances.
Gratuity and PF: Though long-term benefits, they affect take-home pay; factor in their implications while restructuring.
Use Tax Calculators and Consult Experts
Tax Planning Toolbox: Use online tax calculators to maximize deductions.
Professionals: Seek qualified individuals for specialization in tax planning and investment advice.
Optimize Salary Structure
Reimbursements: You can include an amount that will cover meal cards, LTA, internet bills, or phone bills in your salary package. It should be noted that these are non-taxable.
Negotiable Employee Benefits: Ask for negotiable employee benefits that suit you like additional leave or flexible working hours.
Leverage Tax Regimes
Old vs New Tax Regime: Choose the regime that gives you more benefits based on your income & deductions.
Standard Deduction: Use the standard deduction available under the New Tax Regime.
Conclusion
A ₹5 LPA CTC does not equate to ₹5,00,000 in your account. Post-tax and deductions, you will have an in-hand monthly salary of approx 36,000-38,000/-.
The real amount can be more or less depending on your tax regime, your city and your employer policies. But with some smart planning, there’s a way to increase your take-home pay.
Leverage tax-saving instruments, invest the surplus, and work with a financial professional to retain most of your salary.
FAQ’s
What is the monthly in-hand salary of a 5 LPA package?
Approx. ₹36,000–₹38,000 after all of the deductions.
Is 5 LPA a decent salary in 2025 for starters?
Yes. All in all, it provides financial freedom and a comfortable lifestyle on a budget-friendly income in most cities.
Which tax regime is better for a 5 LPA salary?
Both regimes result in zero tax liability due to the Section 87A rebate.
What is the PF deduction in case of a 5 LPA salary?
₹2,500 or ₹30,000 per annum.
Is there any income tax on a 5 LPA income in 2025?
If taxable income is less than ₹7 lakh, no tax is payable after the Section 87A rebate.
How much is my salary deducted regularly?
PF contributions and professional tax are non-negotiable; TDS is subject to taxable income.
Does locality affect HRA exemption?
Yes. Non-metro cities have lower HRA exemptions compared to metro cities.
Does monthly salary include variable pay?
No, it is typically paid quarterly or annually and tied to performance.
How to get a higher in-hand salary from the same CTC?
Reduce tax liabilities by making use of allowances and restructuring the salary as well as maximizing the deductions.
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