I see that my CTC and Take Home salary differ. What is CTC and how is it different than my basic Salary?
This is one of the most common questions amongst the salaried individuals. Mind you, knowing your CTC is an important bit when you are accepting your first job offer or even when you are considering a change in job for better financial prospects.
CTC stands for Cost to Company, which is actually the cost company bares on an employee. CTC includes the basic salary as well as all the monetary and non-monetary benefits offered to employees like House Rent Allowance (HRA), free meals, subsidised loans, medical reimbursement etc.
Salary that gets credited to your bank account is your actual take home salary. You may find that your take home salary is not the figure resembling your CTC.
Now let’s have a look at how the CTC is computed:
| Components | Amount (Rs.) |
| Basic Salary | 5,00,000 |
| House Rent Allowance | 1,00,000 |
| Medical Reimbursement | 15,000 |
| Free meal | 15,000 |
| Conveyance Allowance | 19,200 |
| Special Allowance | 1,50,000 |
| Medical insurance | 7,800 |
| PF (12% of basic salary) | 60,000 |
| Bonus (determined based on performance appraisal & ranges between 75,000 to 1,00,000) | 1,00,000 |
| Total CTC | 9,67,000 |
Now let’s have a look at how your take home salary is computed:
| Components | Amount (Rs.) |
| Basic Salary | 5,00,000 |
| House Rent Allowance | 1,00,000 |
| Conveyance Allowance | 19,200 |
| Special Allowance | 1,50,000 |
| Bonus received | 80,000 |
| Total Salary | 8,49,200 |
| Less: PF (12% of basic salary) | (60,000) |
| Less: Tax payable (Calculated at slab rate, assuming total deductions of Rs. 1,50,000) | (66,785) |
| Take Home Salary | 7,22,415 |
As you can see that the major differentiator between the CTC and the take home salary is the nonmonetary benefits.
So, for eg., the free meals worth Rs. 15,000 as per your CTC will not be paid to to you but you may be given coupons which you can redeem for availing the benefit of free meal. As a result, it will not form part of your take home salary.
The PF will be deducted since it’s a forced investment and is not actually paid out to you.
At last after deduction of the income tax & professional tax, you’d get your take home salary.
So now that you understand the difference between CTC and take home, you need to lookout for following in order to evaluate the salary offered to you:
a. Keep in mind that your basic salary is critical since most of your allowances will be based on that.
b. Keep an eye for special allowance and check out whether they are based on performance or targets.
c. Don’t just focus on the take home salary. check out the other benefits the company provides like medical and health insurance, free meal, transportation, better career prospects which in turn might not be so bad if you match them with a higher take home salary being offered by other companies.
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