A HUGE CTC IS NOT WHAT YOU TAKE HOME !

“I never understand my payslip till date”, says Shreya kapoor, a native of rajasthan. Shreya,�25, software graduate moved to Pune�two years back in the hope of turning her dreams into reality. She started working with a top notch company at a CTC of INR 8,00,000/-. On this CTC basis, she made lavish plans and started expending. But after sometime, when she got her salary, she was shocked. “Those numbers scared me”, she admitted.She says , for instance, i dont even understand my pay structure or CTC as it is called, What I get in hand or why I get that much, since I dont know a thing about finances.

We realised that Shreya’s dilemma is a common problem with most of the working people. The transformation from CTC to take home salary leaves everyone confused.�It is a common practice here in India to show the total possible cost for yourself as the CTC. This cost is not what you get in hand or not what you get on the salary slip but what you were offered in your offer letter or increment letter.

As a broad thumb rule, what you get�in hand will be 70% of your CTC.

What is CTC- Cost to Company in India ?

CTC or Cost to company signifies what a company spends on you. Simply, if something is a Expense for company because of you, Its part of your CTC. So starting from air conditioning you use at your office, to the food you eat at office, everything can be a part of your CTC. The salary and other benefits that your company pays you, are actually cost to them and hence from the term itself, they are quite prevalent in Indian companies while making an offer of employment.

What is Take Home Pay?

Also called the In-hand salary what you actually get. Take home pay is the amount you actually receive at the end of the month or salary period. This in-hand figure is arrived after deducting the Income tax and other deductions as per company policies.�

Lets understand this with an example.

Components of CTC and Take home salary.

CTC	Amount	Take home�	Amount
Basic Salary	2,50,000/-	Basic Salary	2,50,000/-
HRA	60,000/-	HRA	60,000/-
Allowances	50,000/-	Allowances	50,000/-
Medical reimbursements	10,000/-	Bonus	70,000/-
PF (12% of Basic )	30,000/-	Total salary	4,30,000/-
Bonus	75,000/-	(-) PF	30,000/-
�	�	(-) Tax (TDS)	6,180/-
Total CTC	4,75,000/-	Total Take Home Pay	3,93,820/-

 

 

Where TDS is calculated assuming Deduction U/S 80C is 1,00,000/- and rebate of INR 2000/-, Tax is calculated at 10% .

 

What is happening is just the same. All because, it feels nice to say, ” My package is 4.75 lakhs per annum” , even if you only get INR 32,818 approx per month in hand.

Knowing what CTC is?

CTC is combination of various components�falling under three broad categories:�

1. Direct Benefits – It includes the basic pay with Dearness Allowance. These are paid to you monthly and also form part of your take home subject to government taxes. Further the direct benefits also includes the allowances like conveyance allowance, HRA, Mediacal allowance, LTA etc.
2. Indirect Benefits – Those benefits that you enjoy without paying for them. But with that these are expenses for company and hence added to the CTC. Some of the Indirect benefits could be- �

• Interest free loans, if any
• Food coupons
• Company leased Accomodation
• Medical or lif insurance premiums paid by Company
• Free Cab service for Office commutation

� �3. Savings Contribution – All those long term saving plans comes under this head. You dont get this in your monthly pay, but �may get � � � � � � �in�the long run. �Some of these include, Superannuation schemes, Gratuity, EPF Contributions etc.

Reason of Difference between CTC and take home salary?

Its true, Working hard to earn salary is easier than making sense of your salary structure. Isn’t is?? The salary promised on paper does not match with the peanuts that hits your bank monthly. There are two big reasons why does this thought comes up to your mind. Firstly this happens because of the various components as explained above that form part of CTC but are not given to you.�

Secondly, the other big reason for your reduced take home is the “taxes”. This portion, called as TDS is deducted by your employer and not included in take home.

To sum up, we can understand this as-�

CTC= DIRECT BENEFITS+ INDIRECT BENEFITS + SAVINGS CONTRIBUTIONS �

WHEREAS, TAKE HOME = DIRECT BENEFITS – EMPLOYEE PF- INCOME TAX

Joining other company for higher CTC?

“I fell for a similar trap while joining a MNC, 1 year back”, says Rahul Singhal. Rahul joined this big MNC because of higher CTC given to him. But the worst part was that after 3 months of joining , he realised that he was getting the same take home as was in the earlier company. “I felt as if I was traped and fooled” says Rahul.

Each company has its own way of calculating CTC, but higher CTC does not automatically mean higher take home. �What you should focus on, while moving to another job, is the additional increment in your take home component and not just the change in CTC.�

So a friendly advice to all of you ,�If you are just joining the company, try to negotiate with the HR as to opting out of some facilities in exchange for increasing the take home.Understand the expenditure limits and tax angle of perks and benefits, and use them smartly.

Plan your money carefully ! As Mutual fund advertisements says ” Mutual fund Investments are subject to market risks, please read the offer document carefully before investing”. So do I say “CTC is subject to many deductions. Please read the offer letter very carefully before joining.”

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