Difference Between CTC and In-Hand Salary [How to Calculate it?]
Are you beginning your professional journey soon? If yes, gaining knowledge about financial terms you will encounter several times becomes necessary. You must know that the CTC offered is not the same as the salary you get in hand. So, what is the difference between these two?
This blog will discuss the difference between CTC and in hand salary through a definition and comparison table. You will learn salary terms you must know and how to calculate CTC and in-hand salary to manage your money like a pro!
CTC vs In Hand Salary: Definition
To understand the difference between the two, you must first understand what is CTC and in-hand salary. Let us discuss their definition.
What is CTC?
Cost to Company (CTC) is the total amount a company spends to hire and retain an employee. From the point of view of the employee, CTC is the salary package they are offered at the time of hiring.
It includes several direct and indirect benefits, such as basic salary, provident fund, HRA, travel allowance, etc. CTC differs between full-time jobs and part-time jobs. It also differs from city to city. Therefore, CTC for jobs in Delhi will be different from CTC for jobs in Mumbai. Also, check out this blog on the best ways to put your salary expectations during a job interview.
What is In Hand Salary?
In-hand salary is the amount an employee receives in hand after tax and other deductions. It is also known as net salary or take-home pay. Net salary differs from gross salary because tax deductions are not made in the latter. Learn more about the difference between the two with this blog discussing gross salary vs net salary.
Further, to get a better understanding of how taxation affects your in-hand salary, you can refer to an online personal finance course.Difference Between CTC and In Hand Salary: Comparison Table
Let us now explore the difference between CTC and in hand amount in the salary package with the help of a comparison table.
| CTC (Cost to Company) | In Hand Salary |
|---|---|
| It is the total salary package offered by the company. | It is the amount employees receive after essential deductions. |
| It is a salary that the employer is willing to pay to the employee in exchange for their services. It is not the take-home salary. | It is an amount an employee takes home or is credited to the employee’s bank account. |
| It is a sum of several direct and indirect benefits and savings contributions. | It is calculated by subtracting taxes and company policy deductions. |
| Its components include basic salary, leave travel allowance, house rent allowance, dearness allowance, bonus, life insurance, food coupons, provident fund, gratuity, etc. | It includes gross salary minus the TDS, professional tax, provident fund, insurance premium, and other authorized deductions. |
| You can negotiate CTC with your employer when you receive the job offer. | You can increase or better manage your in-hand salary with proper tax planning to avoid large tax deductions. |
| You receive annual hikes and appraisals based on your CTC. | In-hand salary may change due to annual hikes and appraisals. |
CTC vs In Hand Salary: Common Terms
You can get more clarity on the difference between salary and CTC by learning some common terms associated with the two. These terms are given below.
- Gross Salary: It is the amount that the employee receives before any tax deductions. It includes basic salary, HRA, and other bonuses or benefits. It is higher than the in-hand salary because the EPF contribution and income tax are not deducted.
- Grade Pay: It is a structured payment method in organizations (government, public, or private) that use a grade pay system. It follows a compensation structure where an employee receives a specific income according to the level or grade of their job position.
- Basic Salary: It is the core component of an employee’s salary. It is a non-variable minimum amount that an employee receives.
- House Rent Allowance (HRA): It is the amount paid by the company to the employee to reimburse them for their housing rent. Employees receive it even if they are not paying rent and own a house. Depending on the ownership and rental status, this income becomes taxable.
- Superannuation: It is a kind of fund for the employee that they receive as a pension or retirement benefit. It is calculated based on salary, age, and other considerations.
- City Compensatory Allowance (CCA): It is a compensatory allowance provided by the employer keeping in mind the higher cost of living in metropolitan cities.
- Tax Deduction at Source (TDS): It is an income tax collected at the source of income. According to this mechanism, the person liable to make payment to the other person shall deduct tax at source and remit the same into the account of the central government.
- Professional Tax: It is a tax deducted from your salary by your employer and submitted to the state government. It is levied on all individuals who earn an income through any medium, profession, employment, or trade.
- Gratuity: It is the amount a company pays to the employee in return for the services provided by them to the company. It is provided when the employee has worked in a company for five years or more.
How to Calculate CTC and In Hand Salary
As a professional, you should know how to calculate various components of your salary package. It will help you manage household expenses, tax-saving schemes, investment decisions, and other money-related plans.
How to Calculate CTC?
Here is how you can calculate CTC or cost to the company.
Cost to Company (CTC) = Direct Benefits + Indirect Benefits + Savings Contribution
- The direct benefits include the amount paid directly to the employee. It includes basic salary, house rent allowance (HRA), dearness allowance (DA), leave travel allowance (LTA), vehicle allowance, and mobile phone allowance.
- The indirect benefits are the sum of payments made by the employer on behalf of the employees. They include accommodation rent, income tax savings, interest-free loans, and life and medical insurance.
- Savings contributions are schemes the employee is entitled to and provided with. They include gratuity, employee provident fund, and superannuation benefits.
How to Calculate in Hand Salary?
Before calculating the in-hand salary, you need to calculate the gross salary. Here is how you can do it.
Gross Salary = Basic Pay + HRA + Other Bonuses/Allowances
Once you have the gross salary, you can calculate the in-hand salary easily by deducting the taxes and other deductions. Here is how you can calculate in hand salary:
In Hand Salary (Net Salary) = Gross Salary – Deductions (Income Tax, Employees’ Provident Fund Contribution (EPF), Professional Tax) All these calculations may seem overwhelming. Therefore, you can use Excel to make your task easy. You can refer to these basic and advanced Excel formulas for salary calculations.
Conclusion
With the information provided above, it is clear that there is a vast difference between CTC and in-hand salary. By knowing about these differences in the salary amount, you can plan your monthly budget accordingly. Remember, the deductions are beneficial for you in the long run. For example, provident funds unlock financial benefits for your retirement.
Did you find this blog informative? Share your opinion with us in the comments section below. Also, learn more about salary breakup to understand your salary structure better.
FAQs
CTC is not the same as in-hand salary. Cost-to-company or CTC is the salary package offered by the employer, whereas in-hand salary is the amount an employee receives after subtracting taxes and other deductions.
You can calculate in-hand salary by subtracting all the deductions like professional tax, income tax, PF contribution, etc. from your CTC. Alternatively, you can first calculate gross salary and subtract the deductions to determine your in-hand salary.
You can calculate your CTC by adding back the deductions and benefits to the in-hand salary. The major deductions you need to add to the in-hand salary include income tax, professional tax, and PF contribution. It is important to note that the CTC may vary depending on company policies.
Your CTC takes into account several factors like the in-hand salary and the direct and indirect benefits. You can follow the given steps to calculate your CTC:
* Let us assume your basic salary, HRA, and DA are 50%, 15%, and 10% of CTC respectively, EPF is 12% of your basic salary, income tax is 12%, and other benefits account for ₹2000.
* First, we will take the value of CTC as x and calculate gross salary (basic salary+HRA+DA).
Gross Salary = 0.5x + 0.15x + 0.10x = 0.75x
* Next, we will find the value of x by subtracting gross salary, income tax, and EPF contribution from the in-hand salary.
In-hand Salary = 0.75x − 0.06x − 0.12x = 0.57x
25000 = 0.57x
x = 25000/0.57 = 43859.65
* Finally, we will add other benefits to find CTC.
43859.65 + 2000 = 45859.65
Therefore, if your in-hand salary is ₹25,000, your estimated CTC will be around ₹45,859.
