27 July 2022
When you hear the term salary, what is the first thing that springs to mind? Consider yourself a newcomer to the workforce who is about to begin their first job. You finally get that ideal job with a high salary after putting in so much work to prepare for that faultless interview. You’ve arrived at the pay negotiation. But wait, you don’t understand concepts like CTC, in-hand salary, basic salary, and how they work?
Don’t worry. We’ve got it all covered. Let’s start with the fundamentals.
Take-home pay, also known as in-hand pay, is the amount of money deposited to your account at the end of each month after all deductions have been made.
How is it calculated?
To put it simply, this amount is computed by adding your base pay and allowances and then subtracting the various types of taxes (income tax, EPF, professional tax)
Net Salary = Basic Salary + Allowances – Income Tax/TDS – Employee Provident Fund – Professional Tax
The Cost-to-Company, or CTC, is the total salary package of an employee that indicates how much an employer spends on an employee over the course of a year. It consists of basic salary, allowances, a provident fund, and additional benefits. In layman’s terms, this is the amount of money that the firm provides you as a wage package when you are hired for the position.
How is it calculated?
CTC is computed by adding the total cost of any supplementary benefits received during the service year to the employee’s salary.
CTC =Gross salary + PF + Gratuity
CTC contains numerous deductibles that are part of the overall compensation but do not get into the employee’s hands. In contrast, take-home pay is the amount that is eventually deposited in the employee’s bank account after all mandatory deductions such as PT, PF, TDS, etc.
The numerous deductions from the gross income result in a significant discrepancy between the original CTC and the actual in-hand compensation. As a result, it is critical to understand your compensation structure and the many terminologies used to obtain an in-depth understanding of net or in-hand salary, gross income, and CTC as it is necessary to make sound financial decisions, such as tax-saving programs, trip planning, and so on.
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