Salary Vs CTC

Salary Vs CTC

Mr. Raghav joined a Company with good CTC and was very happy about the package till the 1st month of salary. He realised that what he is getting is not what he expected based on CTC. What he had realised is CTC is not Salary and lot of thing differ.

Now let’s try to understand in brief what exactly does each of the term “CTC” & salary mean.

Cost to company (CTC) is a term for the total salary package of an employee which indicates the total amount of expenses an employer (organization) spends on an employee in a single year. It is calculated as stated below



All the emoluments payable to an employee


Add: Expenses which employer bears on behalf of the employee


TOTAL Salary i.e. CTC of an Employee



CTC is calculated by adding the salary of an employee to the cost of all additional benefits an employee receives during the service period. For instance, If an employee's salary is 25,000, then the company pays an additional ₹5,000 for their health insurance, the CTC is ₹30,000.

There are many components to CTC which employees may not directly receive all of their expected entitlements.

Ø  Basic Salary: Basic salary is a fixed part of your compensation structure and the complete amount becomes a part of your in-hand salary. Generally, the basic salary depends upon the employee's designation or grade.

Ø  Allowances: Apart from the basic salary, there are some allowances that your CTC will contain. Examples include HRA, conveyance allowance, leave travel allowance. Some of these allowances are tax free up to a certain limit and some of them are dependent on your actual spending.

Ø  Claims: A part of your salary may also be made up of your billed claims. These include components like mobile allowance, medical allowance etc. There is a maximum limit set to these components and are paid when you submit your bills. These are usually tax free.

Ø  Deductions: A major part of your CTC comprises of compulsory deductibles. These include deductions for provident fund, medical insurance etc. They form a part of your compensation structure but you not get them as a part of your in-hand salary. As such, although it increases your CTC, it does not increment your net salary.

Ø  Performance linked pay: Linking a part of the salary to productivity and performance has become a trend today.

Ø  Taxes: Taxes cause further leaks in your salary as they are unavoidable evil and they eat up a large chunk of your salary. Taxes are obviously never mentioned in your offer letter.

For instance, an employee might find that their maximum entitled limit is only ₹29,533 a month, even though the posted CTC offered was ₹35,333.

The CTC represents money set aside to pay salary to an employee with the addition of money for the employer's contribution to a provident fund. While this amount is technically part of the CTC, it is not directly included in the employee's salary. The same approach is applicable for the company's contribution towards employees' medical insurance as well.

Income tax and professional tax are also deducted from an employee's CTC. They would get ₹22,491 only if they achieved the maximum limit of overtime and upon submission of medical bills worth ₹15,000.

Hypothetical break-up of CTC and tax liability is given below:

Component of salary

Amount (₹)

Taxable amount

Basic salary



Add: House rent allowance



Add: Conveyance allowance



Add: Entertainment allowance



Add: Overtime allowance



Add: Medical Reimbursements



Gross salary






Less: Medical insurance paid by employer for employee



Less: PF Employer’s contribution (12% of basic salary)



Total benefit



CTC = gross salary + benefit







Break up of take home salary:

Deductions/take home salary


TDS (10% of taxable amount)


Add: Employee provident fund (12% of basic salary)


Add: Professional tax




Total deduction


Gross salary




Net salary (gross - deduction)


Monthly take home salary (Net salary /12)


Now Mr Raghav is now happy that he has understood why his CTC & his salary take back home is different. He advised his friends who would be joining his new offices to meet the HR Department and understand their salary structure well in advance. Great Day!!

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Previously: Salary Vs Ctc

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