CTC does not match your Take-home Salary? Here’s Why!

‘Your account has been credited with…’

The above notification is perhaps everyone’s favourite as the feeling of receiving your salary is unparalleled. The satisfaction of being financially independent and the resultant financial freedom are great motivators in general. 

However, you will have noticed that your credited salary amount will not match the CTC in your employee contract. Ever wondered why?

In this blog, let’s gain a bird’s eye view of the differences between CTC, take-home salary, and gross salary.

Firstly, what is CTC?

CTC or Cost-to-Company is the yearly amount borne by the company for an employee i.e., the amount a company spends to hire and sustain an employee. CTC includes various components such as basic salary, House Rent Allowance, Dearness Allowance, overtime payment, Professional Tax, etc.

Your CTC in summary is –

Direct benefits (basic wage, house rent allowance, etc.) + indirect benefits (food coupons, company car, etc.) + savings contributions (VPF, gratuity, etc.)

It is important to note that while most components of your CTC will remain the same regardless of the company you join, certain factors can vary. It is important to understand your salary structure prior to joining as certain components can also be negotiated for.

How are CTC and Gross Salary Different?

While CTC includes every component of a company’s expense for an employee, gross salary is the amount left over after EPF/PF and Gratuity is subtracted from the CTC. 

This is the amount that is paid before your taxes and other deductions. Gross salary also includes bonuses, overtime pay, etc.

In other words, your gross salary includes –

Basic salary + House rent allowance + other allowances

So, What’s my Final Take-home Salary then?

Let’s talk about the amount that finally gets credited to your account each month. This is known as take-home or net salary. 

Your final salary is the amount left over from your gross salary after deducting the income tax, PF, and professional tax.

Therefore, take-home salary = Gross salary – PF – Professional tax (and other deductions, if relevant)

At first glance, this seems like a lot of deductions which ultimately reduces the amount you get each month. But most of these deductions will end up benefiting you in the long run. 

For example, if you have invested in VPF, over and above the amount being invested into your EPF account, you are not only saving on taxes but are also saving for your future.

In Conclusion

One of the common questions asked by most salaried professionals is ‘Why is take-home salary different from CTC’. This is because there are a number of components in your CTC that may not get credited to your account directly but are instead deducted for other purposes such as EPF, taxes, etc. 

However, some of these components can be negotiated which is why it is important to know your salary structure in detail.

We hope this blog has been helpful to you. Did you know that your CTC and take-home salaries will be different? Let us know in the comments below.

In the meantime, if your salary isn’t enough for your expenses and you need a helping hand, check out our instant personal loans.