CASE STUDY ON
CTC Vs IN HAND SALARY
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
Allowance
Gross Salary - 80,000
INDIRECT BENEFITS :
Meal coupons - 5,000
Company transportation facility - 10,000
Total Indirect Benefits - 15,000
RETIRALS :
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.
DIRECT BENEFITS :
Basic - 40,000
HRA - 15,000
LTA - 5,000
Special - 20,000
Allowance
Gross Salary - 80,000
DEDUCTIONS :
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.
www.AircrewsAviation.com
Pragati@Air-Aviator.com
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