CTC vs In-Hand Salary

Learn the difference between CTC and in-hand salary and how to calculate in-hand salary from gross salary.

Greetings, D Talk Show Enthusiasts!

Welcome back to another riveting edition of the D Talk Show Newsletter, where we delve into topics that matter. Today, we're untangling the perplexing web of terms surrounding salary structures: CTC (Cost to Company) versus In-Hand Salary.

What is CTC?

CTC stands for "Cost to Company." It refers to the total cost that an employer incurs for hiring an employee over a specific period, usually a year. CTC encompasses not only the employee's basic salary but also various other components such as allowances, bonuses, incentives, reimbursements, and contributions towards benefits like provident fund (PF), insurance, gratuity, and other perks.

Cost to Company (CTC) is the total amount a company spends to hire and retain an employee. From the point of view of the employee, CTC is the salary package they are offered at the time of hiring.

What is Gross Salary?

Gross Salary refers to the total amount of money earned by an employee before any deductions or withholdings are made. It includes all components of an employee's compensation package, both fixed and variable. Gross Salary serves as the starting point for calculating various deductions, taxes, and contributions to arrive at the employee's Net or In-Hand Salary.

What is the In-Hand Salary?

In-Hand Salary, also known as Take-Home Salary or Net Salary, refers to the actual amount of money that an employee receives in their bank account after all deductions have been made from their Gross Salary. It represents the income that is available for the employee to use for personal expenses, savings, investments, and other financial commitments.

CTC (Cost to Company)

1. It is the total salary package offered by the company.
2. It is a salary that the employer is willing to pay to the employee in exchange for their services. It is not the take-home salary.
3. It is a sum of several direct and indirect benefits and savings contributions.
4. Its components include basic salary, leave travel allowance, house rent allowance, dearness allowance, bonus, life insurance, food coupons, provident fund, gratuity, etc.
5. You can negotiate CTC with your employer when you receive the job offer.?
6. You receive annual hikes and appraisals based on your CTC.

In Hand Salary

1. It is the amount employees receive after essential deductions.
2. It is an amount an employee takes home or is credited to the employee’s bank account.
3. It is calculated by subtracting taxes and company policy deductions.
4. It includes gross salary minus the TDS, professional tax, provident fund, insurance premium, and other authorized deductions.
5. You can increase or better manage your in-hand salary with proper tax planning to avoid large tax deductions.?
6. In-hand salary may change due to annual hikes and appraisals.?

CTC vs In Hand Salary: Common Terms

You can get more clarity on the difference between salary and CTC by learning some common terms associated with the two. These terms are given below.

• Gross Salary: It is the amount that the employee receives before any tax deductions. It includes basic salary, HRA, and other bonuses or benefits. It is higher than the in-hand salary because the EPF contribution and income tax are not deducted.?
• Grade Pay: It is a structured payment method in organizations (government, public, or private) that use a grade pay system. It follows a compensation structure where an employee receives a specific income according to the level or grade of their job position.?
• Basic Salary: It is the core component of an employee’s salary. It is a non-variable minimum amount that an employee receives.?
• House Rent Allowance (HRA): It is the amount paid by the company to the employee to reimburse them for their housing rent. Employees receive it even if they are not paying rent and own a house. Depending on the ownership and rental status, this income becomes taxable.?
• Superannuation: It is a kind of fund for the employee that they receive as a pension or retirement benefit. It is calculated based on salary, age, and other considerations.
• City Compensatory Allowance (CCA): It is a compensatory allowance provided by the employer keeping in mind the higher cost of living in metropolitan cities.?
• Tax Deduction at Source (TDS): It is an income tax collected at the source of income. According to this mechanism, the person liable to make payment to the other person shall deduct tax at source and remit the same into the account of the central government.?
• Professional Tax: It is a tax deducted from your salary by your employer and submitted to the state government. It is levied on all individuals who earn an income through any medium, profession, employment, or trade.
• Gratuity: It is the amount a company pays to the employee in return for the services provided by them to the company. It is provided when the employee has worked in a company for five years or more.

How to Calculate CTC and In-Hand Salary

As a professional, you should know how to calculate various components of your salary package. It will help you manage household expenses, tax-saving schemes, investment decisions, and other money-related plans.

How to Calculate CTC?

Here is how you can calculate CTC or cost to the company.

Cost to Company (CTC) = Direct Benefits + Indirect Benefits + Savings Contribution

• The direct benefits include the amount paid directly to the employee. It includes basic salary, house rent allowance (HRA), dearness allowance (DA), leave travel allowance (LTA), vehicle allowance, and mobile phone allowance.?
• The indirect benefits are the sum of payments made by the employer on behalf of the employees. They include accommodation rent, income tax savings, interest-free loans, and life and medical insurance.?
• Savings contributions are schemes the employee is entitled to and provided with. They include gratuity, employee provident fund, and superannuation benefits.

How to Calculate in Hand Salary?

Before calculating the in-hand salary, you need to calculate the gross salary. Here is how you can do it.

Gross Salary = Basic Pay + HRA + Other Bonuses/Allowances

Once you have the gross salary, you can calculate the in-hand salary easily by deducting the taxes and other deductions. Here is how you can calculate in hand salary:

In-Hand Salary (Net Salary) = Gross Salary – Deductions (Income Tax, Employees’ Provident Fund Contribution (EPF), Professional Tax) All these calculations may seem overwhelming. Therefore, you can use Excel to make your task easy. You can refer to these basic and advanced Excel formulas for salary calculations.

For Example:

What is my CTC if my salary is ?25000?

Your CTC takes into account several factors like the in-hand salary and the direct and indirect benefits. You can follow the given steps to calculate your CTC:?

Let us assume your basic salary, HRA, and DA are 50%, 15%, and 10% of CTC respectively, EPF is 12% of your basic salary, income tax is 12%, and other benefits account for ?2000.?

First, we will take the value of CTC as x and calculate gross salary (basic salary+HRA+DA).?

Gross Salary = 0.5x + 0.15x + 0.10x = 0.75x Next, we will find the value of x by subtracting gross salary, income tax, and EPF contribution from the in-hand salary.?

In-hand Salary = 0.75x ? 0.06x ? 0.12x = 0.57x 25000 = 0.57x x = 25000/0.57 = 43859.65 Finally, we will add other benefits to find CTC.?

43859.65 + 2000 = 45859.65?

Therefore, if your in-hand salary is ?25,000, your estimated CTC will be around ?45,859.?

Join the Conversation

We're eager to hear your thoughts and insights on today's topic! Join the conversation on our social media platforms using #DTalkShow. Your feedback and contributions could be featured in our upcoming episodes!

As we draw the curtains on today's edition of the D Talk Show Newsletter, we hope our deep dive into CTC vs. In-Hand Salary has provided you with invaluable clarity and empowerment. Armed with this knowledge, may you navigate the labyrinth of salary structures with confidence and astuteness.

Until we meet again for our next illuminating discussion, stay informed, stay engaged, and continue to seek knowledge that empowers.