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CTC vs Take-Home salary. The differences you should know

CTC vs Take-Home salary. The differences you should know

When you enter the professional world, you will see that there is less and less hand-holding being extended your way. Unlike in academics, at the workplace, you are expected to figure the workings of the professional world out on your own. If you are not familiar with basic professional jargon you should know, it may also lead to embarrassing interactions with your co-workers and managers. It can often give away your beginner status especially when you don’t need it to and you may be offered less of what you have the potential for. 

If you are at that stage in your job application process where you are negotiating your final salary with a prospective employer, you will most definitely come across terms like Cost to Company or CTC, Take Home Salary, and Basic when you are calculating salary breakdown. The gross figure you are being shown at this time may have quite a disparity from the in-hand actuals that are credited to your account on payday!

To make yourself a master CTC negotiator and ensure that you are being paid as much as you deserve you need to understand how the salary systems work. The difference between take-home salary and CTC is in the nitty-gritty, which you need to familiarize yourself with from the get-go. Read this blog to understand the main differences. 

Difference between Cost to Company (CTC) and Take Home Salary

Your total salary matrix will certainly comprise a list of entries to which designated amounts from the whole are apportioned. Some of these entries include basic, taxes, house rent allowance, food allowance, and provident fund, among others. These entries cumulatively comprise the CTC or Cost to Company.

First things first…

What is CTC?

CTC in layperson language is the total cost that the company incurs over a single employee. A key element to grasp about the CTC structure is that it also takes into account deductibles that are a part of the overall salary but are not credited into your account. This may result in an expectations mismatch as the CTC looks much more inflated than the actuals this way. This is why you need to understand the concept of take-home salary.

Unlike the CTC, take-home salary is the amount that is deposited in your bank account after all deductions, including PT, PF, and TDS (read our blog on this), among others. 

What makes up your CTC

  • The first component of the CTC is the basic salary, which is the amount payable to you as an employee for your services to the organization. This amount is a part of your take-home salary and income taxes are applicable on the same
  • The next component is called allowances, which refer to the benefits that you will receive from the company. Typically these allowances include:
  •  -House Rent Allowance
  •  -Dearness Allowance
  •  -Medical Allowance
  •  -Entertainment Allowance
  •  -Conveyance Allowance

You must also be aware of the fact that these allowances are subject to different income tax rules. You must also familiarize yourself with the applicable rules at the time of salary structuring, to bring down your tax liability and 

  • The last bit is on compulsory deductions, which include Provident Fund, Professional Tax, and Income Tax (depending on your tax bracket)

Therefore, your total salary will be:

CTC = Basic + Allowances + Deductibles

Calculation of Take-Home Salary

You can take several routes to calculate your CTC and take-home salary. These methods are usually based on land and taxation laws, while still others are calculated taking into account company compensation policies. Try to remember this simple formula so you never get confused:

Take home salary = [CTC – TDS (Read our blog on this) – professional tax – PF contribution (if you’ve opted for the same) – any other expenses] 

Takeaways for you

Negotiating a fitting salary with your employer is one of the toughest hurdles you will face while applying for a job. Keep in mind the fact that employers will always try to get the best prospective resource at the best cost to the company. This is all the more reason for you to ensure that you are equipped with the right knowledge and industry standards so as to avoid being underpaid or exploited. Go through every entry in the salary matrix presented to you and ensure that you receive due explanations where there seems to be an expectations mismatch.

Having trouble managing your expenses with your current salary? You could always avail of emergency credit from SmartCoin! The app is trusted by 15 M+ users for all financial needs that come unannounced.

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