Understand your CTC and Salary

It is important to understand the difference between Cost To Company (CTC) and take home salary. I personally never understood my CTC. When I got my first offer of 1.32 Lakh per annum i was thrilled of getting Rs. 11,000 per month but I got disappointed after seeing my first month’s salary. It was just Rs. 8,500 there was a much difference between CTC and Salary. A good CTC may not be as good as u think, always ask HR what will be your net take home salary before accepting an offer.

Your Income Tax is based on the Gross Salary. Check your salary slip or Form 16, where all the deductions happened.


Understand your CTC


Cost to company = Gross Salary + Other Benefits.
Gross salary = Basic + HRA + Allowance.
Net salary in hand = Gross Salary - (PF, Income Tax, Professional Tax).

Basic Salary
This is the fixed and major part of your CTC. It is the complete amount that becomes a part of your in-hand salary and ofcourse it is a taxable income.

Allowances
Your CTC will include allowance like House rent allowance, conveyance allowance; leave travel allowance, Special allowance etc. Some of these allowances are tax free up to a certain limit and some of them are dependent on your actual spending.

Reimbursements
This is the portion of your CTC, paid as reimbursements through billed claims like Medical Reimbursements, Mobile/Telephone Bills, Meal coupons etc. There is a maximum limit set to these components and are paid when you submit your bills. These are usually tax free upto certain limit.

Deductions
Deductions like Provident Fund, Gratuity becomes a part of your CTC but you do not get them as part of your in-hand salary.

Bonus
Most companies include the maximum amount that can be paid as bonus, to the CTC. It could be in the form of Fixed Annual Bonus, Productivity Linked Variable Bonus etc.

Taxes
It’s very important to understand your tax liabilities though it is not mentioned in your CTC.