Last Updated on Dec 27, 2023 by Anjali Chourasiya

CTC (Cost To Company) in an employee’s package is often misunderstood with the in-hand salary. The first one refers to the total salary package of an employee, while the latter is the take-home salary. It is crucial to understand the difference between them as they make up your employment agreement and have separate deductions from your salary. So, let’s get a clear picture of the CTC and the salary you take home.

What is CTC in the salary?

CTC is the total salary package of an employee. It refers to the total amount of money an employer spends to hire a new employee. The major components of CTC are the basic salary, HRA, health insurance, travel allowance, provident fund, etc. 

In other words, CTC is the spending a company incurs on recruiting an employee and sustaining their services. Therefore, CTC is a variable pay since it considers various elements, including direct and indirect benefits.

Components of CTC

CTC have various elements. They can be categorised as direct benefits, indirect benefits, and saving contributions.

  • Direct benefits: Sum paid to an employee on a yearly basis, i.e. take-home salary, subject to government taxes.
  • Indirect benefits: Amount the employer pays on behalf of the employee.
  • Saving Contributions: Saving schemes the employee is entitled to.

Cost to Company (CTC) = Direct benefits + Indirect benefits + Savings contributions.

Let’s have a brief look at all of them:

Direct benefitsIndirect benefitsSaving Contribution
Basic salarySubsidised meals/food couponsEmployees’ Provident Fund (EPF) 
Dearness Allowance (DA)Income tax savingsSuperannuation benefits
House Rent Allowance (HRA)Company leased accommodationGratuity
Medical AllowanceInterest-free loans
Vehicle AllowanceOffice space rent
Leave Travel Allowance (LTA)Life insurance and medical premiums
Telephone/Mobile phone allowance
City Compensatory Allowance (CCA)

Important terms you must understand

  • Basic salary – It is the non-variable component of the salary and is an integral part of the in-hand salary.
  • Dearness Allowance (DA) – It is paid to government employees, pensioners, and private sector employees to curb the effects of inflation.
  • House Rent Allowance (HRA) – The employer provides HRA towards the rent payment of the employee who rents their place of residence.
  • Leave Travel Allowance (LTA) – When an employee travels for company purposes, the company pays their travel expenses, excluding food and accommodation expenses.
  • Vehicle allowance – Employees are eligible for reimbursement of fuel or vehicle charges when used for official purposes.
  • Telephone/Mobile phone allowance – It is the reimbursement of the internet and telephone bills of an employee. This allowance usually has a predetermined limit.
  • City Compensatory Allowance (CCA) – It is the cost provided by the employer to compensate for the higher cost of living in Tier-1 or metropolitan cities. In some cases, CCA is offered for employees working in Tier-2 cities as well.
  • Employees’ Provident Fund (EPF) – It offers retirement benefits. Employees and employers each contribute 12% of the basic salary of employees every month towards the fund. The employer’s contribution is calculated within the CTC for the employee.
  • Superannuation – It is a type of fund that an employee receives as a retirement/pension benefit.
  • Gratuity – It is the amount paid by the employer in return for the services offered by the employee to the company. Gratuity is usually provided after more than 3 or 5 yrs of service.

What is the gross salary?

An employee receives a gross salary from the company before making any mandatory or voluntary deductions. Therefore, gross salary includes basic pay, bonuses, and various allowances and is the amount before deducting any tax. This is the amount you, as an employee, see on your employment contract.

Gross Salary = Basic Pay + HRA + Other allowances/benefits.

What is the in-hand salary?

In simple words, in-hand or net salary is the salary that an employee takes home. Also known as take-home pay, it is the amount an employee receives after taxes and other deductions. Hence, it differs from the gross salary, which doesn’t include tax deductions.

Net Salary = Gross Salary – Deductions.

Difference between CTC and in-hand salary

Let’s explore the difference between CTC and in-hand salary in the form of a comparison table.

AspectCTC (Cost to Company)In-Hand Salary
DefinitionTotal cost incurred by the company for an employee.The actual salary credited to the employee’s account.
ComponentsBasic Salary, HRA, PF, Gratuity, Bonus, Insurance, etc.Basic Salary, HRA, Deductions (PF, Professional Tax), and Other Allowances.
Tax CalculationBased on CTC, including all components.Based on the In-Hand Salary, after deductions.
TransparencyOften higher to attract candidates. It may include benefits that do not directly received by the employee.Reflects the actual take-home pay, providing a clearer picture of earnings.
Negotiation BasisGenerally discussed during job offers and negotiations.What employees focus on for budgeting and financial planning.

Another important terminology is the gross salary; it is the basic pay plus other allowances, bonuses, and benefits. You’ll learn how to calculate the in-hand salary from the gross salary in the following section.

How to calculate in-hand salary from gross salary?

Here is an example to demonstrate how you can calculate the in-hand salary from the gross salary:

Consider you are working in the IT sector with a CTC of Rs. 6,00,000. Here’s a detailed breakdown:

ComponentsAmount (Rs.)Common DeductionsAmount (Rs.)
Basic25,000Gift Card500
HRA10,000Provident Fund (Employee)1,800
Special Allowance13,333Professional Tax200
Gross Earning (A)48,333Total Deductions (B)2,500
Net Pay (A – B)45,333
Total Pay45,333

Yearly pay structure for Rs. 6 Lakh package:

Gross Earning (A): Rs. 5,79,996 (Monthly Gross Earnings * 12)

Total Deductions (B): Rs. 30,000 (Monthly Deductions * 12)

Net Pay (A – B): Rs. 5,49,996

Hence, the in-hand salary is Rs. 5,49,996 for a CTC of Rs. 6 lakh. Now, let’s understand the calculation of CTC from the basic salary.

How to calculate CTC from basic salary?

Let’s continue with the previous example to understand this.

ComponentsAmount (Rs.)Common DeductionsAmount (Rs.)
Basic25,000Gift Card500
HRA10,000Provident Fund (Employee)1,800
Special Allowance13,333Professional Tax200
Gross Earning (A)48,333Total Deductions (B)2,500
Net Pay (A – B)45,333
Total Pay45,333

Yearly gross pay: Rs. 5,79,996

Yearly in-hand salary: Rs. 5,49,996

Now let’s calculate expenses that are born solely by the company. Please note that these benefits may vary from company to company. (Below mentioned are yearly benefits.)

Medical Insurance: Rs. 14,004

Provident Fund (12% of Basic): 36,000 (12% of 3,00,000) [Basic monthly pay (25,000) * 12]

Total benefits = Medical Insurance + Employer Provident Fund

= 14,004 + 36,000

Total benefits = Rs. 50,004

Hence, the total CTC = In-hand salary + Total benefits = 5,49,996 + 50,004 = Rs. 6,00,000

Hence, the total CTC is Rs. 6,00,000.

Please note that this is an example, and the salary structure varies for each company. 

How to calculate your taxable income?

To arrive at your taxable income, you have to subtract the eligible deductions from your gross salary. Here are the steps to do the same:

Step 1: Calculate your gross salary by adding HRA, DA, travel allowance, and special allowance to your basic pay.

Step 2: Next, deduct the professional tax, HRA exemptions, and standard deductions from the gross salary.

Step 3: Add any commission/bonus, extra income from interest, etc., to the arrived amount.

Step 4: Then, subtract various deductions as given under Sections 80C, 80D, and Chapter VIA of the Income Tax Act.

Step 5: The amount you arrive at is your taxable income. Now, the income tax slab and rate applicable to you depend on this final income.

You can take the help of online tax calculators to arrive quickly at your accurate taxable income.

To conclude

In conclusion, it’s vital to recognise that the Cost To Company (CTC) isn’t the same as your take-home pay. While a high CTC may look appealing, your in-hand salary could be less impressive. Before committing to a job, carefully check your basic pay and the actual amount you’ll receive.

Essentially, it’s about understanding the difference between the promised CTC and the practical in-hand salary. Don’t be swayed by big numbers on paper. As you enter the professional world, delve into the details and be aware that the CTC involves deductions and complexities. If you encounter discrepancies, reach out to your company’s experts for clarification. It’s crucial to make informed decisions and foster a transparent relationship with your employer.

FAQs about CTC in the salary

How to calculate a 30% hike in salary?

To calculate a 30% salary hike, multiply your current salary by 1.30. This accounts for the 30% increase, giving you the new salary amount. For example, say your current salary is Rs. 50,000. To calculate a 30% increase, multiply your current salary by 1.30 (which represents a 30% increase) – 

₹50,000×1.30 = ₹65,000

So, with a 30% salary hike, your new salary would be ₹65,000.

What is the HRA in salary?

House Rent Allowance (HRA) is a part of the salary provided by the employer towards the rent payment of the employee. It is allowed as a deduction from taxable income under Section 10(13A).

What is the CTC salary?

Cost to Company (CTC) is the total cost of an employee to the company, including basic pay, reimbursements, various allowances, gratuity, annual bonus, etc. It refers to the total salary package of an employee. 

What is dearness allowance?

The cost of living adjustment allowance that the government pays to the employees of the public sector and pensioners is known as Dearness Allowance (DA). It is reviewed bi-annually and calculated as a percentage of the basic salary to curb the effects of inflation.

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