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.

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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