A 20% hike does not put 20% more money in your account. Take a CTC moving from ₹12,50,000 to ₹15,00,000 — a raise of ₹2,50,000. On the new tax regime for FY 2026-27, about ₹1,36,155 a year actually reaches your bank: ₹11,346 a month, or 54.5% of the raise. Monthly in-hand goes from roughly ₹88,961 to ₹1,00,308. Every figure below is computed at the assumptions listed at the end.
Where the other ₹1,13,845 goes
- ₹1,36,155 — extra take-home pay, the only part you can spend this month
- ₹77,832 — extra income tax, including the 4% cess
- ₹15,000 — your own EPF contribution, 12% of the extra basic pay, deducted from your salary
- ₹15,000 — the employer's PF share, counted inside your CTC but never paid to you as salary
- ₹6,013 — the gratuity provision, 4.81% of the extra basic, paid out only when you leave, after qualifying service
Those five lines add back to ₹2,50,000 exactly. Two of them are still your money: the EPF deduction and the employer's share both land in your provident fund account and keep earning. They just are not spendable this month, which is a large part of why a raise feels thinner than the letter promised.
The ₹12 lakh line decides more than the percentage does
Under the new regime, the Section 87A rebate cancels your tax entirely when taxable income is ₹12,00,000 or less. Below that line you pay nothing. Just above it, marginal relief softens the jump; further above, the rebate is gone and the full slabs apply. So the biggest factor in how much of a hike you keep is often not its size — it is which side of that line you land on. In the example above the old salary sat inside the rebate zone and paid zero tax, while the new one sits well outside it and pays ₹77,832. The same calculation at three salary levels:
- CTC ₹8,00,000 → ₹9,60,000, a ₹1,60,000 raise: you keep ₹1,36,952, or 85.6% — both salaries stay inside the rebate zone
- CTC ₹12,50,000 → ₹15,00,000, a ₹2,50,000 raise: you keep ₹1,36,155, or 54.5% — the raise carries you across the ₹12 lakh line
- CTC ₹20,00,000 → ₹24,00,000, a ₹4,00,000 raise: you keep ₹2,59,762, or 64.9% — already past the line, so only the slab rate bites
Read the first two lines again. A ₹1,60,000 raise delivers ₹1,36,952 in hand; a ₹2,50,000 raise delivers ₹1,36,155. The smaller raise puts slightly more spendable money in your pocket, because it never crosses the rebate threshold. And the 20% hike at ₹12.5 lakh keeps a smaller share than the identical 20% at ₹20 lakh. These are three different people at three different salaries, not one career path — but the pattern holds: the percentage on your appraisal letter tells you very little by itself.
What these numbers assume
All figures use the in-hand salary calculator's standard assumptions: the new tax regime for FY 2026-27, basic pay at 50% of CTC, PF at 12% of basic on both sides, a gratuity provision of 4.81% of basic, professional tax of ₹2,400 a year, the ₹75,000 standard deduction and 4% cess. Change any of those and your answer changes — professional tax varies by state and some states levy none. Two limits worth knowing: CTC is not a promise, because variable pay, joining bonuses and ESOPs all sit inside it; and the calculator does not model marginal relief, so it overstates the tax if your new taxable income lands just above ₹12,00,000. Run your own before-and-after CTC through it.
Where to go next
FAQs
Four things take a bite first: income tax on the extra income, your own EPF contribution at 12% of the extra basic pay, and the two parts of CTC that were never salary — the employer's PF share and the gratuity provision. In the worked example, a ₹2,50,000 raise splits into ₹1,36,155 in hand, ₹77,832 of tax, ₹30,000 across the two PF contributions and ₹6,013 of gratuity provision.
No. Your EPF contribution and your employer's share both go into your provident fund account, stay yours and keep earning interest until you withdraw. It is not spendable this month, which is why a raise feels smaller than it looks, but it is deferred savings rather than a cost.
It depends entirely on how many deductions you can genuinely claim — HRA, 80C, home-loan interest and so on. The new regime has lower slab rates and a much larger 87A rebate but almost no deductions; the old regime is the reverse. Every figure in this post is new-regime only, so run your real deduction amounts through a regime comparator before deciding.
Educational information, not financial advice. Figures are illustrative and assume the stated return or rate; actual outcomes vary and aren't guaranteed. Run your own numbers before deciding.