For many mid-level professionals in India, an offer of ₹8.5 LPA (Lakhs Per Annum) is considered a decent salary. It’s worth noting, however, that what matters the most is not the offered CTC (Cost To Company), but rather the in-hand salary you receive each month after all deductions are made.
In this article, we will cover the major deductions which include:
- Income Tax (Old vs New Regime)Â Â
- EPF (Employee Provident Fund)Â Â
- Professional Tax Â
- Other common deductions Â
By the end, you’ll know how much salary you actually get every month, and more importantly, how to boost that amount legally.
Gross Salary vs. Net Salary
Let’s first understand the two most important terms:
- Gross Salary: The total of the remuneration given by a company to an employee before any tax and other deductions are made. Â
- Net Salary (In-Hand): The amount that is credited to an employee’s account after deductions, unlike gross salary where deductions are yet to be made.
Sample Salary Structure for ₹8.5 LPA
| Component | Monthly (₹) | Yearly (₹) |
| Basic Salary | 35,000 | 4,20,000 |
| HRA (House Rent Allow.) | 17,500 | 2,10,000 |
| Special Allowances | 18,333 | 2,20,000 |
| Gross Salary | 70,833 | 8,50,000 |
Salary Deductions Explained
Let’s go step by step into how much gets deducted from your salary.
A. Employee Provident Fund (EPF)
Both the employee and the employer contribute 12% of the basic salary to EPF.
| Contribution Type | Rate | Amount (Monthly) |
| Employee EPF | 12% of ₹35,000 | ₹4,200 |
| Employer EPF (3.67%) | 3.67% of ₹35,000 | ₹1,285 |
| Employer EPS (8.33%) | 8.33% of ₹35,000 | ₹2,915 |
Note: Only the employee’s contribution (₹4,200/month) is deducted from the in-hand salary.
B. Professional Tax
This varies by state and is a small monthly deduction.
| State | Monthly Deduction (₹) |
| Maharashtra | ₹200 |
| Karnataka | ₹200 |
| Tamil Nadu | ₹150 – ₹200 |
We’ll assume ₹200/month for simplicity.
C. Income Tax Calculation (FY 2024-25)
You can choose between:
- Old Regime (with deductions like 80C, HRA, etc.)
- New Regime (no deductions but lower tax rates)
Option 1: Old Tax Regime
Assumptions:
- Standard Deduction: ₹50,000
- 80C Deductions: ₹1,50,000
- HRA Exemption: ₹80,000 (approx.)
Taxable Income Calculation:
| Description | Amount (₹) |
| Gross Income | 8,50,000 |
| Standard Deduction | -50,000 |
| 80C Deductions (EPF, etc.) | -1,50,000 |
| HRA Exemption | -80,000 |
| Taxable Income | 6,70,000 |
Tax Payable:
| Income Slab (₹) | Tax Rate | Tax (₹) |
| 0 – 2.5L | 0% | 0 |
| 2.5L – 5L | 5% | 12,500 |
| 5L – 6.7L | 10% | 17,000 |
| Total Tax | ₹29,500 | |
| Less Rebate (87A) if eligible | 0 | |
| Net Tax | ~₹30,000/year |
Option 2: New Tax Regime (Default from FY 2024-25)
| Income Slab (₹) | Tax Rate | Tax (₹) |
| 0 – 3L | 0% | 0 |
| 3L – 6L | 5% | 15,000 |
| 6L – 9L | 10% | 30,000 |
| 9L – 12L | 15% | 45,000 (partial) |
| Total Tax | ~₹40,000/year |
Note: Since total income is ₹8.5L, Section 87A rebate is not available.
Monthly In-Hand Salary Calculation
Let’s now calculate how much money you get every month in your bank.
Monthly Take-Home (New Regime)
| Component | Amount (₹) |
| Gross Salary | 70,833 |
| Less: Employee EPF | -4,200 |
| Less: Professional Tax | -200 |
| Less: Income Tax | -2,500 (approx.) |
| Net In-Hand | ₹63,933 |
Annual Take-Home Salary
| Component | Amount (₹) |
| Gross Salary | ₹8,50,000 |
| Less: Total Deductions | ~₹1,00,000 |
| Net In-Hand Salary | ₹7,50,000 |
Old vs New Tax Regime Comparison
| Parameter | Old Regime (₹) | New Regime (₹) |
| Gross Income | 8,50,000 | 8,50,000 |
| Deductions (80C, HRA, etc.) | ~1.5 – 2 Lakh | 0 |
| Taxable Income | ~6,70,000 | 8,50,000 |
| Tax Payable | ~₹30,000 | ~₹40,000 |
| Monthly In-Hand | ₹64,500 – ₹65,000 | ₹63,933 |
Verdict: If you have home rent, EPF, and other 80C investments, Old Regime is better.
If you want simplicity, choose the New Regime.
How to Maximize Your In-Hand Salary?
To optimize your paycheck using legally accepted methods:
A. Claim Complete House Rent Allowance Exemption and Submit Rent Receipts.
- Make certain your rent agreement is legitimate.
B. Invest In Section 80C Tax Savings.
- Employee’s Provident Fund (EPF)
- Public Provident Fund (PPF)
- Equity Linked Savings Schemes (ELSS)
- Life insurance premiums
C. Claim Other Benefits
- Leave Travel Allowance (LTA)
- Insurance reimbursement
- Sodexo meal vouchers
D. Tax Regime Chosen Must Be Thought Out Carefully
- Carry out a comparison between the spending and investing side of things.Â
- Always use an online tax calculator prior to making your option.
Conclusion
With an annual package of ₹8.5 LPA, the monthly take-home pay of an employee falls between ₹63,000 to ₹65,000 after EPF, income tax, and professional tax deductions. This value fluctuates with the chosen tax slabs, HRA, and Section 80C investment. While new regimes are less document-heavy, claiming high deductions under old regimes provides more upfront value.
A fundamental comprehension of salary structure enables consultation to effective financial decision-making while boosting planned savings. Never forget to check your payslips and tax benefits, as receiving payments throughout the year can significantly improve earnings optimization.
FAQs
What is the in-hand salary for ₹8.5 LPA?
The salary falls within the range of ₹63,000 to ₹65,000 on a monthly basis after tax deductions.
Which tax regime is better for ₹8.5 LPA?
The Old regime is better if there are high deductions, otherwise the claim process of new regime is much simpler.
How much PF will be deducted monthly?
PF deduction amounts to ₹4200 at 12% of basic salary from the employee’s side.
Does professional tax apply everywhere?
No, it is state-specific. Frequently subject to ₹200 per month in Maharashtra and Karnataka.
Can I do anything to increase my take home salary?
Yes, by maximizing HRA reimbursement claims through efficient utilization of Section 80C funds.
