Most people get shocked when they find out that the salary that hit their bank account is not exactly the same as the figure that they saw on the offer letter. This is because the figure mentioned in the Offer letter

is CTC (Cost-to-company) while what you get in hand is your net salary after various deductions (including taxes and EPF).

Most people often divide the annual CTC mentioned on the offer letter by 12 and expect that their monthly in-hand salary will be that amount.

But your CTC generally includes certain indirect benefits which may not be credited to your bank account but you are entitled to the same and your company is bearing the cost for the same. Also, deductions 

like taxes are not shown in the offer letter. This is why the CTC never matches the annual salary that hits your bank account? 

Let’s understand CTC and its various components.

What Is CTC?

CTC stands for Cost to a company.

If you are an employee, CTC is the value that your company is willing to spend on you during a financial year. Now, your CTC includes direct benefits like your basic salary, House Rent Allowance (HRA), 

Leave Travel Allowance or LT, special allowance, performance bonus, etc. CTC also includes indirect benefits like subsidized meals, company car facility, meal coupons, etc. And CTC also includes retirement 

benefit plans like Employee provident fund (EPF), gratuity, etc.

CTC = Direct Benefits + Indirect Benefits + Retirement Benefits

Let’s Understand This With An Example :

DIRECT BENEFITS :                   

Basic -    40,000

HRA -     15,000

LTA -      5,000

Special - 20,000 


Gross Salary - 80,000


Meal coupons -  5,000

Company transportation facility - 10,000

Total Indirect Benefits - 15,000


EPF (employee+employer contribution) - 11,000

Gratuity - 4,000

Total Retirals - 15,000

Monthly CTC= Gross Salary + Indirect benefits + Retirals= Rs 1,00,000

What Is Net Salary Or Take-Home Salary?

From the above example we are clear that the monthly CTC is different from the net salary. That is because components like indirect benefits and retiral benefits don’t hit your bank account. Further, your net 

salary is not the entire amount that comes under the Direct Benefit part. Your ‘Net salary’ is calculated after deducting components like income tax from your Direct benefits.

Net Salary = Direct benefits - deductions like income tax, etc.

Let’s take the above example to understand the net salary calculation.


Basic -    40,000

HRA -     15,000

LTA -      5,000

Special - 20,000 


Gross Salary - 80,000


Income tax - 6,000

Professional tax - 1,000

EPF - 4,000

Total Deductions - 10,000

Net/ Take-home salary = Gross salary – Deductions = 80,000 – 10,000 = Rs 70,000

Note that the above example is a generic representation of the difference between CTC and Net Take-home salary. 

Pragati Agrawal MBA 

Business Analyst

AirCrews Aviation Pvt. Ltd.



No comments:

Post a Comment