"Understanding Your Salary Package: From CTC to Actual Take-Home Pay"

We have received many queries and comments about CTC (Cost to Company) calculation, particularly regarding the difference between CTC and in-hand salary. To address this, here’s a simplified breakdown based on common practices:

Understanding CTC vs. In-Hand Salary

Many people ask about the difference between CTC and in-hand salary. It’s important to understand that CTC represents the total cost a company incurs for an employee, including all benefits and allowances, while in-hand salary is what you actually take home after deductions.

Scenario:

- CTC: ?18,00,000

- PF (Provident Fund): ?5,000 per month

- Gratuity: ?2,000 per month

1. Calculate Deductions:

?? - Provident Fund (PF):

???? - Employee Contribution: ?5,000/month * 12 = ?60,000/year

???? - Employer Contribution: ?5,000/month * 12 = ?60,000/year

?? - Gratuity:

???? - ?2,000/month * 12 = ?24,000/year

2. Calculate Gross Income:

?? - Gross Income: CTC - (Employee PF + Gratuity)

?? - Calculation: ?18,00,000 - (?60,000 + ?24,000) = ?18,00,000 - ?84,000 = ?17,16,000

3. Calculate Taxable Income:

?? - Deductions:

???? - Investments (80C and NPS): ?2,00,000

???? - Other Tax Rebates (HRA, Professional Tax, Standard Deduction): ?2,00,000

???? - Total Deductions: ?4,00,000

?? - Taxable Income:

???? - Calculation: Gross Income - (Employer PF + Gratuity + Deductions)

???? - Calculation: ?17,16,000 - (?60,000 + ?24,000 + ?4,00,000) = ?17,16,000 - ?4,84,000 = ?12,32,000

?? - Income Tax Calculation:

???? - Tax on ?2,50,000 to ?5,00,000: ?12,500 @5%

???? - Tax on ?5,00,000 to ?10,00,000: ?1,00,000 @20%

???? - Tax on Above ?10,00,000: ?94,800 @30%

???? - Total Tax: ?12,500 + ?1,00,000 + ?94,800 = ?2,07,300

???? - Add 4% Cess: ?2,07,300 * 0.04 = ?8,292

???? - Total Tax: ?2,07,300 + ?8,292 = ?2,15,592

4. Calculate In-Hand Salary:

?? - In-Hand Salary:

???? - Calculation: Gross Income - Income Tax

???? - Calculation: ?17,16,000 - ?2,15,592 = ?15,00,408/year

???? - Monthly In-Hand Salary: ?15,00,408 / 12 = ?1,25,034

Summary:

- CTC: ?18,00,000

- Gross Income: ?17,16,000

- Total Deductions (PF + Gratuity): ?84,000

- Taxable Income: ?12,32,000

- Income Tax: ?2,15,592

- Annual In-Hand Salary: ?15,00,408

- Monthly In-Hand Salary: ?1,25,034

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This calculation assumes specific PF, gratuity, and tax deductions. Your exact in-hand salary may differ based on additional factors like exact HRA, tax-saving investments, and other allowances. For personalized advice, consult a financial advisor or tax professional.

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