CTC Vs In-Hand Salary: 5 Costly Deductions Most Employees Forget To Check
When you get a job offer, you often hear two terms: 'CTC' and 'In-Hand' salary. As simple as these terms sound, it can get a little complicated to understand them. Let's understand the difference between CTC (Cost to Company) and In-Hand salary in simple terms, as it will help you set realistic expectations, plan your budget better, and also avoid any confusion during salary negotiations.
CTC Vs In-Hand Salary:
Here's a table to simplify the differences between CTC and In-Hand salary.
| CTC | In-Hand | |
| Meaning | Total amount a company spends on you in a year | Amount that actually comes to your bank account every month |
| Inclusion | Basic, HRA, Allowances, Employer PF, Gratuity, Insurance, Bonus, Other Benefits | Gross Salary minus deductions |
| Where you see | On offer and appraisal letter | In salary slip and bank account |
| Deduction | No Deductions | PF, Income Tax/TDS, Professional Tax, Loan EMI, among other things are deducted |
| Employer PF | Included in CTC | Already deducted |
| Gratuity | Usually included in CTC | Not included |
| Frequency | Calculated yearly | Received monthly |
| Benefits | Health insurance, bonus and other benefits included | Not received monthly |
| Taxes | Deducted before payment | Deducted before you get in-hand salary |
| For example | Rs 15 lakh p/a salary | Rs 93k to 95k in hand after deduction |
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What are some deductions many employees forget to check in salary?
Let us look at the simple breakdown of the costliest deductions every employee must check before saying yes to a new job.
1. Employer PF Contribution
In India, Employer PF Contribution is 12% of the employee's basic salary. For example, on a Rs 50,000 salary, around Rs 6000 per month will be deducted as employer PF (Provident Fund). It is important to get clarification on the same from your HR before joining any new company.
2. Income Tax/TDS
This is the biggest deduction in your salary. For example, a person with Rs 15 lakh p/a salary can lose upto Rs 20k to Rs 35k per month depending on regime.
3. Variable Pay
Many times, variable pay like performance bonus, insurance and even stocks get deducted from your income, making in-hand pay way lesser than CTC. Make sure to check everything with HR while finalising a CTC.
4. Gratuity
Gratuity is not paid as a fixed percentage of your total salary. According to Labour Law Reporter, it is calculated using a statutory formula based on 15 days' salary for every completed year of service, divided by 26 working days. An employee must complete five years in a company to qualify for this.
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5. Employee PF
Employee PF is also deducted from your salary and goes to your EPF account. It is included in your CTC and gets deducted every month.
Conclusion:
Remember, CTC is a marketing number, but in-hand salary is the reality. Before you accept any offer, always make sure to ask for a detailed salary breakup and calculate your monthly in-hand salary in advance. This knowledge will save you many bucks.
(Image Credits: Magnific)
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- What is the full form of CTC?
- CTC means Cost To Company. It is the total amount a company spends on an employee in one year including salary, benefits, PF, gratuity, and insurance.
- What is In-Hand Salary?
- In-Hand Salary is the amount you actually receive in your bank account every month after deductions.
- Which is more important, CTC or In-Hand?
- For budgeting and expenses, In-Hand matters more. For comparing job offers and benefits, CTC matters more.
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