The various deductions from the gross salary results in a considerable difference between the initially offered CTC and the actual in-hand salary. It is important to understand the different components and terminologies used while describing your salary.

Have you ever noticed that the CTC that was offered to you during the hiring process and the amount you are getting in-hand has a considerable difference? Before joining any organisation, newcomers generally have a misconception that the CTC that is offered and the in-hand salary will be the same.

But in reality, this is not true. There is a difference between the CTC and the take-home salary you receive at the end of every month. The CTC to take-home salary can be calculated using the take-home salary calculator.

CTC or cost to the company is the amount of money spent by the employer to hire a new employee. It comprises of several components such as HRA, medical insurance, provident fund, etc. which is added to the basic pay. The allowances may include meal coupons, cab service, subsidised loans, etc. All these elements combined form the entire cost to the company. Basically, CTC is the cost spent by the employer spent in hiring and sustaining the employee in the organization.

Gross Salary
Gross salary is the amount after the EPF and gratuity are subtracted from the CTC. Basically, the remuneration paid before deducting the income tax, professional tax, and other deductions. It is inclusive of bonuses, overtime pay, paid holiday amount, and other differentials.

This is the part of the employee's salary that is paid by the company as a token of appreciation for the services of the company offered during the tenure of employment. It is mainly defined as the benefit provided to the employee at the time of their retirement. Under the Income Tax Act, an employee is eligible to receive the gratuity amount after the completion of 5 or more years of full-time employment at an organisation.

Net Salary or In-hand Salary
Take-home salary or the In-hand salary is the amount which the employee receives after the tax, and other deductions are carried over. The difference between gross and net salary is that the salary that includes the income tax, professional tax, and other company policy deductions subtracted from the gross salary.
In-hand Salary = Gross Salary - Income Tax -Professional Tax

It is important to know that the CTC offered will be different from what you actually receive in-hand at the end of the month. The difference between CTC and in-hand salary are the various deductions occur at the time of payout. The take-home salary can be increased by proper tax planning and avoiding any income tax deductions.

If the employee invests INR 1.5 lakh in tax saving entities under Section 80C such as mutual funds, PPF, etc. he/she can save on income tax. This will result in reducing the total deductions from the gross salary, thereby increasing the in-hand salary.

* Terms & conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.