CTC, or Cost to Company, is the total amount a company spends on an employee annually. However, the CTC mentioned during hiring often differs from what you actually receive in-hand. Why? Because CTC includes components like basic pay, bonuses, benefits and employer contributions—many of which don’t directly reflect in your monthly salary.
This blog explains the CTC meaning, decodes the CTC full form and highlights the differences between CTC, gross salary, and in-hand salary — so you can better understand your compensation and negotiate more effectively.
In order to understand CTC and gross salary differences, you must know: What is the difference between CTC and in-hand salary? What is the salary in hand? Also called take-home salary, this is a part of your CTC that you actually get after all the deductions have been made.
Understanding how to calculate salary in hand will enable you to manage your finances efficiently.
Here’s an example of how to calculate in-hand salary from CTC:
In-hand salary = Your gross salary – Deductions. Take-home pay is the amount of money deposited in your account by your employer every month after all deductions.
Gross salary is the amount you receive from your employer before any deductions are made. Your gross salary includes the following components without any tax deductions:
Net salary is what you take home after taxes and deductions. It’s calculated by adding your basic salary and allowances, then subtracting income tax, EPF, and professional tax.
Formula:
Net Salary = Basic Salary + Allowances – Income Tax/TDS – EPF – Professional Tax
Quick Terms:
What is CTC in salary? If you wish to know the difference between CTC and gross salary, it is essential to understand CTC first. CTC, or cost to a company, is the amount that an employer incurs in order to hire an employee.
Here are the CTC components you need to know with a hypothetical example:
| CTC component | Amount |
|---|---|
| Total CTC | ₹10,00,000 |
| Gross salary | ₹8,50,000 |
| Performance bonus | ₹1,50,000 |
| Deductions | |
| Professional tax | ₹200 |
| Employer PF | ₹1,800 |
| Employee PF | ₹1,800 |
| Employee Insurance | ₹250 |
| Total monthly deductions | ₹4,050 |
| Total annual deductions | ₹48,600 |
| Net take-home monthly | ₹66,783 |
| Net take-home annual | ₹8,01,400 |
Simply put, CTC is the amount the employer or company spends after recruiting you and utilising your services. Remember, CTC is a variable pay, which includes several direct and indirect benefits from the employer.
While direct benefits include your take-home salary per government taxes, the amount paid by the employer on your behalf constitutes the indirect benefits. Apart from these, the savings schemes you are eligible for are also included in the CTC.
You can calculate your salary from CTC when you do the following:
First, compute your gross salary, which is CTC – Employer’s EPF contribution – Gratuity. Then compute your in-hand salary, which is Gross Salary – Income tax – your PF contribution – Professional tax.
CTC is computed by adding the total cost of any supplementary benefits received by the employee during the service year to the employee’s salary.
CTC = Gross salary + PF + Gratuity
Or,
CTC = Direct benefits + Indirect benefits + Savings contributions
Read the meanings of the terms in the formula below:
To compute your gross salary, you first need to know: How is CTC calculated from in-hand salary? This involves understanding deductions like EPF, gratuity and taxes.
| Aspect | CTC (Cost to Company) | In-Hand Salary |
|---|---|---|
| Definition | Total annual cost a company incurs for an employee | Actual monthly salary credited to your bank account |
| Includes | Basic salary, allowances, bonuses, EPF, gratuity, insurance, and other benefits | Basic salary + allowances – deductions |
| Excludes | — | Employer contributions and statutory deductions like EPF, ESI, etc. |
| Credited Monthly? | Not fully – includes non-cash components and annual benefits | Yes – paid monthly after all deductions |
| Deductions Applied | Not applicable directly – CTC includes these in the total | EPF, TDS, Professional Tax (PT), Employee State Insurance (ESI) |
| Financial Planning Use | Helps understand total compensation offered by the company | Helps manage monthly expenses and budgeting effectively |
| Importance | Gives a complete view of your salary package | Shows the actual take-home pay you can use each month |
Understanding what is the difference between CTC and in-hand salary enables better salary negotiations and financial planning. Knowing these terms helps you make sound financial decisions about your salary package, tax-saving programs, trip planning and more.
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No, in-hand salary and CTC are different. While in-hand salary is the money deposited in your account every month after all deductions, CTC constitutes your total salary package.
If you are still confused about what CTC is in salary, you can consider it as the company’s total cost in order to hire an employee. On the other hand, gross pay is the part of your salary without any deductions.
The CTC includes the following components:
The gross salary consists of the following:
Subtracting the gratuity and EPF contributions from CTC can help you determine the gross salary. CTC is considered better than gross salary because of its umpteen benefits.
Yes, your employer’s contribution towards the Provident Fund is included in your CTC.
No, LPA and CTC are not the same thing. LPA refers to Lakhs Per Annum and it is a measure that you can use to express your CTC or Cost to Company as your salary package. For instance, if your CTC is ₹1.50 lacs per year, you can mention it as a CTC of ₹ 1.50 LPA.
Yes, any joining bonus that your employer offers you is usually a part of your CTC.
Any salary hike you get is calculated on your basic pay or base salary.
If you are earning ₹18,000 a month as your in-hand salary, you will need to know the bonus, if any and total annual deductions to calculate your CTC.
Your CTC depends on various components such as your allowances, deductions and basic pay. So, if you are earning ₹40,000 a month as your in-hand salary, you can only compute your CTC by adding in these figures.
Your CTC changes based on whether you are getting ₹5 lacs as your annual or monthly salary, as well as all your deductions and allowances. You can calculate your CTC only once you know your salary break-up and other details.
