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Difference Between CTC and Take Home Salary Explained - NDTVProfi...



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Difference Between CTC and Take Home Salary

BankBazaar.com | Updated On: November 29, 2014 13:06 (IST)
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Ankit Sharma, 22, an engineering graduate, was happy as he got placement through
campus interview and was offered a salary package of Rs 3.6 lakh annual CTC (cost to
company). From the first day, he started planning how he wanted to spend his first
salary. But his excitement was dimished when he received the much-awaited pay slip.
Before joining a workforce, many generally have a misconception that the actual take
home salary is same as CTC. But in reality, there is huge difference between the two.
Why CTC is different from pay slip
When Ankit rechecked the details he found that there are many components in CTC
which he won't receive. The HR department at his new office gave him the break up
and said that his maximum entitled limit was only Rs 22,491 a month where according
to the CTC offered, he thought it would be Rs 30,150. It was explained to him that the
employer's contribution to provident fund was part of the CTC but not of his salary.
The same logic is applicable for the company's contribution towards employees'
medical insurance as well.
Income tax and professional tax also got deducted from Ankit's CTC. He would get Rs
22,491 only if he touched the maximum limit of overtime and upon submission of
medical bills worth Rs 15,000.
Break-up of CTC and tax liability is given below:
Component of salary


Amount (Rs.)

Basic salary



House rent allowance



Conveyance allowance


Entertainment allowance



Overtime allowance



Medical Reimbursements


Gross salary

3,30,000 2,88,000

Medical insurance


PF (12% of basic salary)


Total benefit
CTC = gross
salary + benefit
Break up of take home salary:
Deductions/take home salary
Tax (10% of taxable amount)


Employee provident fund (12% of basic salary)


Professional tax


Total deduction


Gross salary


Net salary (gross - deduction)


Monthly take home salary


Components of salary
Basic salary: Basic salary is the core salary and it is the fixed part of the compensation
package. A number of other components are calculated in the basic salary. Generally,
the basic salary depends upon the employee's designation or grade.
Allowance: Different types of allowance is given to employees such as house rent
allowance (HRA), leave travel allowance (LTA), dearness allowance, convince
allowance, city compensation allowance and children's education allowance.

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Difference Between CTC and Take Home Salary Explained - NDTVProfi...


Perquisites: It is basically different facilities such as rent free accommodations, car

facility, interest subsidy on loan, reimbursement on medical bills and club facility.
Contribution to provident fund: Contribution to the provident fund is mandatory for
Indian companies. Twelve per cent of the basic salary gets contributed from the
employee for PF and another 12 per cent by the employer. So 24 per cent of the basic
salary gets deducted.
Reimbursement: Sometimes employees are entitled to many reimbursements such as
medical treatment, newspaper, phone bill etc. One would not get the money in salary
but funds will be passed against submission of such bills. So these are not included to
the monthly pay slip. Most of the cases, an upper limit is there for each category.
Life and health insurance: New joinees get excited when they come to know that their
organisation is taking care of them and paying the premium of their life and health
insurance. But in reality, it is included in the CTC.
Transport facility: Getting a car from office may sound really good but actually,
transport facility or pick-and-drop facility is also a component of the package. The
interest-free car loans are not actually free.
Subsidised meals: It is true that really there is no free lunch. Free lunch, subsidised
meals from office canteen, food coupons even the tea or coffee come with a price tag to
the employee.
Rent of the office space: It is surprising but true that sometimes the rent of office
space (the space in the employee's cabin) is borne by the employee in his CTC.
Making the most of your CTC
One has to understand the basic difference CTC and take home salary:
CTC = Direct benefits + indirect benefits + saving contributions
Take Home Salary = Direct benefits - employee PF - other deductions if any - income
While negotiating with a new employer, one should try to increase the direct benefit part
of CTC. For instance, if an organisation is offering transportation, which is an indirect
benefit, the employee should try to get it as conveyance allowance which is a direct
benefit. Negotiation can be done to convert the subsidised meals to food allowance
again to convert indirect benefit to direct benefit
Many organisations offer ESI benefits for employee's health. But there are only few ESI
(Employee's State Insurance) hospitals where the facility is available. If the employee is
offered medical reimbursement, it benefits him more. One can also ask for family health
insurance and medical reimbursement instead of the employee alone. Even if the total
coverage or the maximum limit of reimbursement is the same for individual or family, it
will minimise expenditure.
House rent allowance gives some tax rebate. Up to a certain limit, conveyance
allowance is tax free. So this is a must-include in the compensation package instead of
a pick-and-drop facility. Before accepting an offer from the new employer, you should
try to know the company policy. The tax liability of allowances and perquisites vary from
one company to another.
Take home salary can also be increased with the help of proper tax planning. If a
person invests Rs 1.5 lakh in tax saving instruments under Section 80C such as PPF,
Equity-Linked Saving Scheme (ELSS) etc., then he/she can save tax. Although this
would not alter the CTC, the take home salary will be increased.
BankBazaar.com is an online loan marketplace.
Disclaimer: All information in this article has been provided by BankBazaar.com
and NDTV Profit is not responsible for the accuracy and completeness of the
Story first published on: November 29, 2014 13:03 (IST)
Tags: CTC, Cost to company, Actual salary, Salary package

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