Let’s end the Confusion: CTC v/s Take Home Salary

Do you think you are not getting the pay as promised by your company?

If the answer is yes, then it’s time to break the wall of ambiguity by understanding the difference between Cost to Company (CTC) and Take home salary. First let’s understand what CTC is:

CTC or Cost to Company is every single penny that a company would incur on you as an employee. This includes Basic pay and all monetary and nonmonetary benefits.

Then what is Take home Salary?

Take home salary is the amount which you receive at the month’s end from your company or in other words the money that gets into your pocket every month. It’s arrived after deducting all the tax liabilities and other contributions like contribution to PF etc.

Suppose Ram, a software engineer, is a appointed in a company with a package of Rs. 6,73,200 per annum. Let’s analyze the difference between the two with his example:

Particulars
CTC
Take Home Salary

Monthly
Yearly
Monthly
Yearly
Basic Pay
30,000
3,60,000
30,000
3,60,000
D.A.
10,000
1,20,000
10,000
1,20,000
H.R.A
6,000
72,000
6,000
72,000
Car Facility
4,500
54,000


Telephone Reimbursement
500
6,000


Free meals
1,500
18,000


Employer contribution to PF( 12%of basic pay)
3,600
43,200


Gross Salary
56,100
6,73,200
46,000
5,52,000
Employee contribution to PF ( 12% of basic salary)


(3,600)
(43,200)
Income tax liability (TDS)


(2,500)
(30,000)
CTC/Take Home
56,100
6,73,200
39,900
4,78,800

It can be observed that there is a difference of Rs. 16,200 between CTC and Take Home Salary per month. The Company offered him a package of Rs. 6, 73,200 p.a. but he only got Rs. 4, 78,800 in hand.

The question which arises here is “where the difference amount of Rs. 16,200 gone?”

From the above example, it’s apparent that CTC includes all the direct and indirect benefits. On the other hand, Take Home Salary is what Ram is getting after deducting his contribution to P.F. and TDS.

Take Home Salary=CTC-Car Facility-Telephone Reimbursement-Free meals-Employer’s contribution to P.F.-Employee’s contribution to P.F.-Income Tax

But there is no need to get disheartened. No matter if you aren’t getting the deducted amount today, you will definitely reap the future benefit out of the salary given up today.

What you should do is you can start planning how to increase your take home salary by proper tax planning and negotiations with your employer so as to convert indirect benefits like free meals, car facility etc. into direct benefits by way of allowances.

CA Abhishek Soni

By CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.

2 comments

  1. Hi ,

    I understood the point of Difference in Net pay and CTC. Can you tell me the situation where candidate is informed with CTC and Candidate has option of opting out from PF. What we need to do. Since, in accounts if the employee accepting PF we can balance the balance sheet but in this Case Employee already informed about CTC . So, how we write in accounts and will the employee gets the benefits of employer contribution of amount to his salary or not?

    1. Dear Sir,

      PF applicability depends upon the salary amount. If the salary amount is below Rs. 15,000/- per month, then PF is mandatory. In case the salary is more then Rs. 15,000/-, then its optional. In hand salary will be high in case of non-deduction of PF. Further, this depend the policy of the organisations. So, in your case, accounts department need to implement this as per the policy. You can connect with us at [email protected] or at +09660996655 to discuss the query in detail as it required some more details.

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