Difference between CTC vs Gross Salary vs In-hand 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 various deductions from the gross salary results in a considerable difference between the initially offered CTC and the actual in-hand salary. The CTC to take-home salary can be calculated using the take-home salary calculator. Hence, it is important to understand your salary structure and the various terminologies used.

What is CTC?

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.

What is 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.

What Is Gratuity?

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.

Read more: What Is Gratuity In Salary? How To Calculate? Eligibility Criteria for Gratuity

What is 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 that occur at the time of payout. The take-home salary can be increased by proper tax planning and avoiding any income tax deductions.

For instance, 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.

Also Read: How to budget your salary for maximum savings

Conclusion

With access to all defining parameters, calculating your salary beforehand is easy. Learning about terms like gross and net salary helps make sound financial decisions in the long run. You can opt for tax-saving programs, set wealth goals, and plan for contingencies.

FAQs – Frequently Asked Questions