Have you noticed that the CTC discussed while hiring is generally different from what you actually get in hand? There’s a considerable difference between CTC and gross salary and in-hand salary.
It is crucial to understand the differences between these terms since knowing how they work helps you approach salary negotiations in a more informed manner. For a brief overview of the CTC vs in-hand salary and how they are calculated, read on.
In order to understand CTC and gross salary differences, you must know what is in-hand salary. Also called take-home salary, this is a part of your CTC that you actually get after all the deductions have been made.
Hence,
In-hand salary = Your gross salary – Deductions
Take-home pay is the amount of money deposited in your account by your employer every month post 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:
This amount is calculated by combining your basic pay and allowances. Various types of taxes (income tax, EPF, professional tax) are then subtracted from the sum.
Net Salary = Basic Salary + Allowances – Income Tax/TDS – Employee Provident Fund – Professional Tax
Read the meanings of the terms in the formula below.
Are you wondering 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.
Now that you know what these terms entail, you can easily determine the conclusion of the CTC vs in-hand salary debate. While CTC is the amount including all deductibles, your in-hand salary means what you actually get after all the deductions have been made.
Simply put, CTC contains numerous deductibles in your overall compensation but is not credited to your account monthly. On the other hand, in-hand salary is the amount credited to your bank account every month as part of your salary. The deduction from this sum is made by the company to contribute towards:
The numerous deductions from your gross income result in a significant CTC and gross salary difference. As a result, it is critical to understand your salary structure and the many terminologies that form an important part of the calculation.
Knowing these terms helps you make sound financial decisions about your salary package, tax-saving programs, trip planning and more. You can easily finance goals, from vacations to medical needs, with an Instant Loan or Fibe’s personal loan that you can apply for in minutes on the Fibe App.
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.
In-hand salary is a part of your total CTC. To calculate it all you have to do is apply this simple formula:
In-hand salary = CTC – Sum of all deductibles
CTC is the total amount spent by an employer on you for utilising your services, while in-hand salary is the amount you receive every month after deductions.
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 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 using which you can 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.
