When you join an organisation as an employee for the first time, the various terms related to your salary are new to you. It is important to know the different terminologies related to your salary structure.

The key terms like CTC, gross salary, basic salary, deductions, reimbursements, take-home salary, etc. can be confusing when you start your career in a company. Here we have explained these key terms that are used in the salary structure format to make it simpler for you to understand. Have a look at the terms used during the salary structure calculation:

  • Cost to Company (CTC)
This is the total amount a company spends on an employee. It is the total salary package offered by the company which comprises of the different parts. The CTC breakup comprises of basic pay, allowances, gratuity, reimbursements, variable pay, annual bonus, etc.
CTC = Gross Salary + Provident Fund + Gratuity

  • Basic Salary
This is a fixed part of an employee’s salary and is the base income. This majorly depends on the designation of the employee and which industry the employee works in.

  • Gross Salary

This is the amount which is calculated by adding the basic pay, and other allowances before the deductions and taxes are applied. It mainly comprises of bonuses, holiday pay, over-time amount, and several other differentials.

Gross Salary = Basic Pay + House Rent Allowance (HRA) + Other Allowances

  • Take Home Salary
Take home salary of net pay is the amount calculated after deducting the income tax at source and other deductions as per the company policy.

Take Home Salary = Basic Pay + HRA + Allowances - Income Tax - EPF - Professional Tax

  • Allowances
These are the various amounts received by the employee of the company for meeting several service requirements. This is paid to the employee in addition to the basic pay and can vary from organisation to organisation. These mainly include components such as HRA, conveyance allowance, leave travel allowance, dearness allowance, medical allowance, special allowance, etc.
 

  • Reimbursements
Usually, some of the organisations provide their employees with certain reimbursements for phone bills, internet usage, medical treatments, etc. These are reimbursed after producing the bills for the same.

  • Employer Provident Fund (EPF)

This is an investment made by both, the employer and the employee, which acts as a lump sum amount which forms the part of the employee’s retirement benefits scheme. This amount is directly deposited in the employee’s PF account.

  • Gratuity
This is a part of the salary that is received by the employee from the employer for the services offered upon leaving the job. The amount is received by the employee after completing five years and will be deducted every year from the CTC.

  • Professional Tax
This is a tax charged by the state government and is limited to a maximum amount of INR 2,500 per year. The professional tax amount varies from state to state.

  • Income Tax
This is the tax levied on the employee’s income. The employee usually gets the salary after the deduction of the tax from the employer and is also known as Tax Deduction at Source (TDS).

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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