Are you a salaried employee? Or a student? Or just entering the job market? No matter where you are in your professional journey, it is vital for you to understand your salary. When you join a new company, chances are that you will pick a company offering you the highest CTC. The acronym CTC refers to the Cost to the Company. Note that your CTC is not the salary that will be credited to your account. That is your in-hand salary. Thus, it becomes important to understand the difference between in-hand salary and CTC. Let us explain this below.

• CTC includes multiple components, such as bonuses, provident funds, and gratuities, which are deducted to calculate the in-hand salary.
• The in-hand salary is the net amount you receive after all deductions.
• Gross salary is your total income after deductions like EPF and gratuity but before income tax and other mandatory contributions.

Before we get to the difference between in-hand salary and CTC, you must understand the different concepts related to your salary. The entirety of your salary is known as the CTC. However, there are several deductions in your CTC that bring it down to your in-hand or take-home salary. Let us understand some of the salary-related terminology:
 

CTC

As previously iterated, the Cost to the Company is your salary or CTC. From the perspective of a business, it is the cost they will incur to onboard a new employee. There are various components that comprise the CTC. These can include your basic pay, HRA, provident fund, health insurance, and other benefits like taxi services, subsidised loans, meal vouchers, and more. The cumulative of all these aspects makes up your CTC.
 

Gross salary

The term ‘gross salary’ is the salary that you can keep after gratuity and EPF deductions are made from your total CTC. This is your salary before taxes like professional tax and income tax, and other deductions are removed from your salary. This includes all aspects like overtime, bonuses, paid holidays, and more.

Gratuity

As the name suggests, gratuity is related to gratitude. It is a part of your CTC and a payment made by companies to employees as a gratitude gesture for rendered services over time. Typically, gratuity benefits are provided to employees when they retire. The Income Tax Act states that employees are eligible for gratuity collection after they have worked for an employer full-time for at least five years.

In-hand salary

This is important if you want to understand the difference between in-hand salary and CTC. Your in-hand salary is the actual amount that you will receive monthly for the services you have rendered to a business. 

Now, let us look at a few components of CTC, categorised, to understand the difference between in-hand salary and CTC:
 

Direct benefits

• Basic Salary
• Conveyance
• Medical expenses
• House or stay allowances
• Travel allowance
• Fuel allowance
• Dearness allowance
• Incentives
• Phone allowance
• Special allowance
   

Indirect benefits

• Office rent
• Insurance
• Income tax savings
• Food coupons
• Interest-free loans
• Company accommodation
   

Saving contributions

• Gratuity
• EPF
• Annuation benefit

After understanding the difference between in-hand salary and CTC, it is also important to know how you can calculate your in-hand salary from your CTC. Usually, your company will provide you with a formula that you can use to calculate your salary. This formula will consider your CTC, EPF, bonus, and all other factors. Here is the basic calculation process you will go through:

• The first step is to calculate the gross salary. This can be calculated by subtracting EPF, gratuity, and bonuses from your CTC.
• The second step is to calculate your taxable income by subtracting the applicable taxes from your total income.
• You can check which income tax slab you fall into and calculate your income tax rate accordingly.
• With these deductions made, you will arrive at your in-hand salary.

Understanding the difference between in-hand salary and CTC is crucial for both job seekers and employees. CTC encompasses the total cost incurred by a company to employ an individual, while the in-hand salary represents the actual monthly amount an employee receives after various deductions such as taxes, provident fund, and gratuity. By breaking down the components of CTC, employees can better grasp their true earnings and make informed decisions about job offers and financial planning.