Why is take-home Salary Different from CTC

Every year, lakhs of young people enter the professional workforce in India, with salaries varying according to job profiles and skill levels. If you were to ask any of them about the various components that make up their salary, you'd most likely get blank or puzzled looks.

If you are one of them, you no longer need to be misinformed. On this page, you will learn about Cost to Company (CTC), Take-Home Salary, Net Salary, and Gross Salary, as well as the differences between them.

In summary, CTC is the amount a company spends on an employee, and Gratuity is what the employee receives upon retirement. Gross Salary refers to what a company pays an employee before deductions whereas Net Salary refers to what an employee receives after deductions.

CTC stands for Cost to Company

The cost to the company, or CTC as it is commonly known is the cost incurred by a company when hiring an employee. CTC includes a number of other allowances, including House Rent Allowance (HRA), Provident Fund (PF), and Medical Insurance, in addition to the basic salary.

These allowances frequently include free meals or meal coupons from companies like Sodexo, office space rent, cab service to and from the office, and subsidized loans, among other things. Essentially, all of these elements add up to form the total Cost to Company.

To put it simply, CTC is the amount of money spent by a company on hiring and retaining employees.

CTC is considered variable pay because it varies based on various factors, and thus when the CTC varies, so does the employee's take-home pay or net salary. Individuals can correct this by simply matching the CTC to the actual amount they are receiving.

CTC Example

Let's look at an example of CTC to see what it looks like:

Mr. A was hired by a company at a salary of Rs. 8,08,873. The following is a breakdown of his annual earnings:

  1. CTC Components (Cost to Company)

As previously stated, Cost To Company has several components. A tabular column below lists all of the benefits and contributions that comprise a CTC.

CTC is essentially the sum of Direct Benefits (the amount paid to an employee on a yearly basis), Indirect Benefits (the amount paid on behalf of the employee by the employer), and Saving Contributions (saving schemes the employee is entitled to).

Basic Salary

Interest Free Loans

Superannuation benefits

House Rent Allowance (HRA)

Office Space Rent

Employer Provident Fund (EPF)

Conveyance Allowance

Company Leased Accommodation


Dearness Allowance (DA)

Food Coupons/Subsidized meals

Medical Allowance

Income Tax Savings

Telephone/ Mobile Phone Allowance

Medical and Life insurance premiums paid by employer

Vehicle Allowance

Leave Travel Allowance (LTA)

Incentives or bonuses

Special Allowance/ City Compensatory allowance, etc.

Here is a breakdown of each component of a CTC:

Basic Salary: Unlike other aspects of CTC, your basic salary will never change and will always be the same. Your entire basic salary will be included in your take-home pay.


Allowances: As part of your salary package, you will receive a number of allowances that will assist you in meeting your basic needs. These are some examples:

House Rent Allowance (HRA): HRA is a component of the CTC provided by an employer to its employees. HRA typically includes tax benefits if employees pay for housing each year and amounts to about 10% of take-home pay.

Leave Travel Allowance (LTA): Another tax-free component of a CTC, LTA is provided to employees to cover travel expenses anywhere in the country. It should be noted that an LTA only pays for the travel allowance and not for other expenses such as food and drinks.

Dearness Allowance (DA): Inflationary figures continue to rise year after year, and Dearness Allowances are provided to address this issue. This is essentially a cost-of-living adjustment given to the economy to offset the effects of inflation.

Gross Salary

Gross Salary is the cost to the company minus employee provident fund (EPF) and gratuity (CTC). In layman's terms, gross salary is the amount paid before taxes or other deductions and includes bonuses, overtime pay, holiday pay, and other differentials.

In India, an Employee Provident Fund is a Ministry of Labour-mandated employee-benefit scheme that provides employees with services such as medical assistance, retirement, education for children, insurance support, and housing. The Employee Provident Fund Organisation (EPFO) has the authority to impose EPF, pension, and insurance policies. The employer must contribute at least 12% of the employee's salary to his or her EPF.

Furthermore, when the employee reaches the age of 55, he or she is entitled to withdraw the entire amount accrued in his or her PF account. 

In the event of any of the following events, the employee may withdraw the funds in his or her PF account:

Gratuity, on the other hand, is a portion of an employee's salary paid by the employer as a token of appreciation for the services provided by the employee during the employment tenure. It is a defined benefit plan provided to the employee upon retirement.

An employee may leave his or her job for a variety of reasons, including retirement/superannuation, a better job elsewhere, retrenchment, or voluntary retirement.

An employee receives a gratuity after 5 years or more of full-time service in an organization, according to Section 10 (10) of the Income Tax Act.

Take-Home Pay or Net Salary

Net salary, also known as Take-Home Salary, is the amount of money that an employee receives after deducting taxes and other expenses. It is the amount left over after deducting Income Tax at Source (TDS) and other deductions allowed by the relevant company policy.

Net Salary is the amount left after income tax, professional tax, and EPF (Employee Provident Fund) are deducted from gross salary. Gratuity may or may not be included in this.

Employee Provident Funds and Public Provident Funds are a set percentage of an employee's salary, usually no less than 12% of the basic salary. Gratuity, on the other hand, is a percentage of the basic salary, typically 4.81% of the employee's basic salary.

In this case, income tax is deducted at the source by the employer and is based on the employee's gross pay. Furthermore, an employee's basic salary should be at least 50%-60% of his or her gross salary.

Example of Mr. A's Salary:





House Rent Allowance


Leave Travel Allowance


Communication Allowance




Food coupons


Other special allowance


Gross Salary



Medical Insurance


Provident Fund (Employer’s +Employee’s share)


Total Benefits



Gross + Benefits


The highlighted row represents your employee's total CTC. The following adjustments are made to this amount to determine the total take-home pay.

Take-home pay = [CTC - TDS - professional tax - PF contribution - any other expenses]

How to increase your take-home salary

1. Employee Provident Fund (EPF) (EPF)

The EPF is primarily regarded as a retirement benefits scheme. It can also be used as a tax-advantaged investment. The government or the company deducts the employee's contribution to the EPF. This Fund assists you in saving a portion of your income for the long term. In addition, with certain conditions, the employer's contribution to EPF is tax-free. However, if a person believes that he can make better investments by earning a higher salary, he can choose not to participate in this scheme if his employer allows it.

2. HRA Exemption Should Be Fully Utilized

Salaried employees who live to tell the tale of rent, that is, who live on rent for accommodation, are eligible for House Rent Allowance exemptions (HRA). 

If you live in your own home that belongs to your parents, you can still qualify for HRA by demonstrating that you pay your parents' rent. This amount you pay toward your rent is tax deductible in part. This HRA exemption must be claimed. HRA is sometimes as much as 50% of basic salary and provides a significant tax break.

3. Take a Leave of Absence and Claim Your Leave Allowance

Remember to take full advantage of your vacation time deductions. It is critical to take leave for your own and your family's enjoyment, as well as for the tax break. Your LTA are tax-free if you are on leave and filing a claim.

There are four conditions to keep in mind:

  1. Only travel within India is permitted. International travel is not permitted.

  1. This LTA can be claimed twice in four years.

  1. You should go on vacation (which is obvious). Travel for oneself and one's family is permitted (where the family includes your spouse, children, and dependent parents, brothers, and sisters).

  1. LTA is only available for travel, i.e. air, rail, or carfare, and not for lodging, food, or other expenses.

4. Remember to take advantage of the Rs.1.50 lakhs 80C deduction

Section 80C of the Revenue Enhancement Act of India is a constitutional provision that identifies various expenditures and investments that are exempt, i.e. expenses on which no tax is payable. Make sure you're claiming it; it's one of the best ways to save money on taxes by using the 80C deduction (Maximum- Rs.1.50 lakhs).

Deductions in 80C include the following:

5. Exemptions from Medical Insurance (80D Benefit)

Remember to take full advantage of the 80D deduction (Medical insurance premium). Medical insurance saves you money on taxes and is an important part of one's life and afterlife.

Deductions for medical premiums for yourself, spouse, and children are available up to Rs.25000/-. Additional deductions of up to Rs.25000/- are available for premiums purchased, ensuring your parents. If one of the insured parents is an elderly person, the available benefit increases to Rs.5000/- (senior citizen). As a result, it's a fantastic tax-saving opportunity.

6. Attend regular medical examinations and health checks.

Most people overlook this tax-saving strategy. It falls within the 80D limit of Rs.25000; you can claim a deduction of up to Rs.5000/- once a year for health checkups for yourself, spouse, children, and fogeys. You can also get a Rs. 15000 tax break for any medical expenses you incur each year. This includes any family members who live with you, such as your spouse, children, and dependent parents.

7. Taxes on Home Equity Loans

If you're paying interest on a home equity loan or planning to buy a house, this can be another good tax break. The interest paid on home equity credit can be deducted from your income up to 2 lakh per year (for your own house). By claiming this benefit and receiving a rebate, one can save a significant amount of money.

It is also possible that you have purchased a house that is still under construction and is staying in rental housing during this time period. In this case, you'll get the best of both worlds.

8. Education Loan for Advanced Study (80E), A Tax Saving Topic

If you are considering or are already pursuing an educational activity, you will be able to deduct your education loan under section 80E of the tax code. Interest paid on education loans used for teaching is deductible with no limit. It is frequently claimed for yourself, your spouse, or your children. Any study after passing the Senior Secondary Examination or its equivalent exam is considered education. The advanced studies will take place in India or abroad.

9. Education and hostel allowance for children must be claimed

Claim this exemption if you have children. (Rs.1200/- per child per year) This deduction is available for a maximum of two children (Government check on population!). The allowance is very low, and it is clear that the government has not kept up with India's rising educational costs. Something is preferable to nothing.

 If you have children and live in a hostel, you can claim the Children Hostel Allowance (annually Rs.3600/- per child).

10. Reimbursements

Tax rebates can be reduced significantly by claiming reimbursement for expenses incurred by you during the life of your company, such as telecom expenses, fuel charges, driver expenses, the purchase of knowledgeable staff and accessories required for your job, food coupons, and so on.

11. Telephone Allowance

Some employers pay the employee's monthly mobile phone bills. To keep things simple, this phone is usually postpaid. Because the employee does not pay this amount, it is not taxable.

12. VPF (Voluntary Provident Fund) (VPF)

VPF reduces your income tax rebate, allowing you to take home more money. It does not directly increase your income, but it does assist you in saving money. VPF is an optional monthly contribution to your provident fund. This amount is completely tax-free, lowering the taxable amount.


Salary negotiations are one of the most contentious issues between an employer and an employee. As an employer, you may want to get the most out of a prospective resource at the lowest possible cost, but you must also ensure that you are not underpaying talent or engaging in practices that could lead to exploitation.

As an employer, it is your responsibility to walk prospective employees through each entry in their salary matrix to ensure that they are clear and agreed upon.

Ans: A salary slip is a document that details an employee's salary, such as basic salary, allowances, bonuses, tax deductions, employee fund contributions, gratuities, and so on. The employer provides this document to the employee on paper or via email.

Ans: The core of the salary is the net salary. It is the amount of pay received by the employee before any fringe benefits are deducted. Gross salary, on the other hand, is the monthly/annual salary paid before any tax deductions. Allowances, bonuses, and other benefits are included in the gross salary.

Ans: The cost to the company, or CTC, is the money spent by the employer when a new employee is hired. HRA, health insurance, PF, and other benefits are included. The gross salary, on the other hand, is the monthly/yearly salary paid to the employee.

Ans: Profession tax - In India, this tax is levied by the state government or the government of a union territory on all individuals who earn a living through employment, trade, or the practice of a profession. Majority of states, such as Karnataka and Maharashtra, levy professional taxes, but Haryana and Delhi (UT) do not. Professional tax rates vary across the country because they are a subject of state government. To clear any doubts, you should consult your state's professional tax slab.

Income tax is a direct tax imposed by the Government of India on the earnings of its citizens. This tax applies to salary, property income, house profits, business profits, and income from other sources. To determine the amount of income tax to be paid to the government, each individual must first determine which tax bracket he belongs to.

Ans: Metro cities typically pay 40% of total fixed CTC, while non-metro cities pay 40%. These are indicative figures, and percentages may differ from one organisation to the next.

Ans: The employer contributes 12% of the annual basic salary. Furthermore, you can voluntarily have funds deducted from your paycheck (this is called a voluntary provident fund, VPF). An employee can contribute up to 100% of his or her basic salary and dearness allowance (if applicable) to a VPF.

Ans: You can claim tax relief on home loan interest up to INR 2 lacs. This is only applicable to fully constructed homes, not those under construction. Furthermore, you can get tax relief on the principal amount paid through EMIs up to 1.5 lacs, but this is only applicable if you own a fully constructed house. However, in order to claim this deduction, the house must not be sold within 5 years of possession. Otherwise, the earlier deduction will be added back to your income in the year of sale.

Internal Links

Was this information useful?

300 characters allowed (alphanumeric and special characters such as comma, full stop, @, ", &)

Thank you. Your feedback is important to us.


Apply for personal loan

Green Tick Success

Thank you for your interest!

We will reach out to you shortly