Difference Between CTC and Take Home Salary Explained:

An engineering graduate, was happy as he got placement through campus interview and was offered a salary package of Rs 3.6 lakh annual CTC (cost to company). From the first day, he started planning how he wanted to spend his first salary.But his excitement was dimished when he received the much-awaited pay slip.

Before joining a workforce, many generally have a misconception that the actual take home salary is same as CTC. But in reality, there is huge difference between the two.


Why CTC is different from pay slip?

When rechecked the details found that there are many components in CTC which he won't receive.The HR department at his new office gave him the break up and said that his maximum entitled limit was only Rs 22,491 a month where according to the CTC offered, he thought it would be Rs 30,150. It was explained to him that the employer's contribution to provident fund was part of the CTC but not of his salary.

The same logic is applicable for the company's contribution towards employees' medical insurance as well.

Income tax and professional tax also got deducted from CTC. He would get Rs 22,491 only if he touched the maximum limit of overtime and upon submission of medical bills worth Rs 15,000.


Break-up of CTC and tax liability is given below:


Component of salary

Amount (Rs.)

Taxable amount

Basic salary



House rent allowance



Conveyance allowance



Entertainment allowance



Overtime allowance



Medical Reimbursements



Gross salary



Medical insurance



PF (12% of basic salary)



Total benefit



CTC = gross salary + benefit




Break up of take home salary:


Deductions/take home salary


Tax (10% of taxable amount)


Employee provident fund (12% of basic salary)


Professional tax


Total deduction


Gross salary


Net salary (gross - deduction)


Monthly take home salary



Components of salary:

 Basic salary: Basic salary is the core salary and it is the fixed part of the compensation package. A number of other components are calculated in the basic salary. Generally, the basic salary depends upon the employee's designation or grade.


Allowance: Different types of allowance is given to employees such as house rent allowance (HRA), leave travel allowance (LTA), dearness allowance, convince allowance, city compensation allowance and children's education allowance.


Perquisites: It is basically different facilities such as rent free accommodations, car facility, interest subsidy on loan, reimbursement on medical bills and club facility.


Contribution to provident fund: Contribution to the provident fund is mandatory for Indian companies. Twelve per cent of the basic salary gets contributed from the employee for PF and another 12 per cent by the employer. So 24 per cent of the basic salary gets deducted.


Reimbursement: Sometimes employees are entitled to many reimbursements such as medical treatment, newspaper, phone bill etc. One would not get the money in salary but funds will be passed against submission of such bills. So these are not included to the monthly pay slip. Most of the cases, an upper limit is there for each category.


Life and health insurance: New joinees get excited when they come to know that their organisation is taking care of them and paying the premium of their life and health insurance. But in reality, it is included in the CTC.


Transport facility: Getting a car from office may sound really good but actually, transport facility or pick-and-drop facility is also a component of the package. The interest-free car loans are not actually free.


Subsidised meals: It is true that really there is no free lunch. Free lunch, subsidised meals from office canteen, food coupons even the tea or coffee come with a price tag to the employee.


Rent of the office space: It is surprising but true that sometimes the rent of office space (the space in the employee's cabin) is borne by the employee in his CTC.



Making the most of your CTC:


One has to understand the basic difference CTC and take home salary:


CTC = Direct benefits + indirect benefits + saving contributions




Take Home Salary = Direct benefits - employee PF - other deductions if any - income tax


While negotiating with a new employer,one should try to increase the direct benefit part of CTC. For instance,if an organisation is offering transportation, which is an indirect benefit, the employee should try to get it as conveyance allowance which is a direct benefit. Negotiation can be done to convert the subsidised meals to food allowance again to convert indirect benefit to direct benefit


Many organisations offer ESI benefits for employee's health.But there are only few ESI (Employee's State Insurance) hospitals where the facility is available. If the employee is offered medical reimbursement, it benefits him more. One can also ask for family health insurance and medical reimbursement instead of the employee alone. Even if the total coverage or the maximum limit of reimbursement is the same for individual or family, it will minimise expenditure.


House rent allowance gives some tax rebate.Up to a certain limit,conveyance allowance is tax free. So this is a must-include in the compensation package instead of a pick-and-drop facility. Before accepting an offer from the new employer,you should try to know the company policy. The tax liability of allowances and perquisites vary from one company to another.



 Take home salary can also be increased with the help of proper tax planning. If a person invests Rs 1.5 lakh in tax saving instruments under Section 80C such as PPF, Equity-Linked Saving Scheme (ELSS) etc., then he/she can save tax. Although this would not alter the CTC, the take home salary will be increased.