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Differences between CTC, Gross salary & Take home salary

by SAM

If you are in college or recently joined a corporate job, understanding some specific terms of your salary becomes important. CTC, Gross salary, and take-home salary are the most common terms used in Indian companies. However, many employees fail to realize the exact difference between these terms. Employees tend to think that CTC divided by 12 months is the amount they are going to receive at the end of every month but instead they get a fraction of the total CTC.

The in-hand salary is remarkably different from the offered CTC. Hence, it becomes important to understand these terms to make an informed decision while accepting a job offer. With the advent of technology, calculating take-home salary has become easy with the help of the CTC calculator. In this article, we are going to learn about the differences between CTC, Gross salary & Take home salary and how to use a CTC calculator.

Use the CTC calculator to calculate the take-home salary.

What is the Cost to Company (CTC)?

CTC is the total expenses incurred by the company to hire a new employee. It is also called the total annual salary package of the employee. CTC consists of various components such as House rent allowance (HRA), travel allowance, employee provident fund, health insurance, conveyance allowance, bonus, city compensatory allowance, gratuity, medical insurance, vehicle allowance, mobile phone allowance, etc.

CTC includes both direct and indirect benefits given to the employees. Direct benefits include the amount paid to the employee and indirect benefits include the amount that is paid by the employer on behalf of the employee.

What is the Gross Salary?

Gross salary is the amount given to the employee before deducting any taxes or mandatory deductions. It includes the basic salary along with bonuses, holiday pay, overtime pay, etc.

The various components of the gross salary are basic salary, HRA, EPF, perquisites, special arrears, special allowance, bonus and professional tax. EPF, insurance, and pension are mandatory schemes by the government of India. EPF contribution and gratuity provide income to the employees after their post-work years. At least 12% EPF contribution of the employee’s salary is done by both the employee and employer. An employee is allowed to  withdraw the EPF amount before the retirement years in three situations:

  • When the employee is moving abroad
  • When the employee has been unemployed for more than 2 months. In the first month of unemployment, the employee can withdraw 75% of the EPF balance and the remaining 25% after the second month.

The full EPF amount can be withdrawn at the time of retirement.

What is a Take-home Salary?

Take-home or in-hand salary is the amount received by the employee after all the deductions and taxes are made. Take-home salary is significantly less than the gross salary. It is the amount that remained after deducting TDS, professional tax, gratuity, and other deductions from the gross salary.

Take-home salary = Gross Salary – Deductions

Difference between gross salary and take-home salary

  • Gross salary is the amount acquired from CTC after subtracting EPF, professional tax, and gratuity whereas take-home salary is the amount left after all the deductions are made.
  • Gross salary is composed of basic salary along with HRA and other allowances whereas take-home salary is the amount received by the employee at the end of the month.

What is a CTC Calculator and How Does it Work?

CTC calculator calculates the take-home salary within a few seconds and it is available online. The CTC calculator has a formula box in which you need to enter the CTC and bonus, then it will calculate all the deductions such as EPF, professional tax, take-home salary, and medical insurance.

You can use the CTC calculator from Jupiter Money. All you have to enter is the gross salary and bonus. For example, your gross salary is INR 6 lakhs and the bonus is INR 50,000. The CTC becomes INR 6.5 lakhs and the net salary is INR 6,11,600. The basic salary is 50 per cent of the CTC which is INR 3 lakhs.

You can also calculate your salary using formulas.

  • Gross salary can be calculated by subtracting EPF and gratuity from the CTC.
  • Take-home salary can be calculated by subtracting income tax, professional tax, and EPF from the gross salary.
  • Taxable income can be calculated by subtracting EPF, HRA, tax-free allowance, LTA, health insurance, and other deductions from the gross salary.

To conclude, understanding CTC, gross salary, and net salary is important especially when you are working. However, the structure of the salary is determined by many factors such as the designation of the employee, sector, and segment. However, you should learn to negotiate the CTC offered to you for a higher take-home salary and for a better understanding of CTC you can use the CTC calculator.

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