December 11, 2023
Discover The Power Of One-Click Payroll Generation
ReadDiscover Why OpportuneHR is the best HRMS Software in India! Schedule a Demo OR Call us @ +91 7700-954949
Young employees often get confused between different salary terms. It is important to understand these concepts when joining a new company. We will clarify these terms and provide an example of take-home salary calculation to help you understand salary structures.
The focus is on ‘take-home salary’, which is the number that matters the most to employees.
The take-home salary is crucial for managing day-to-day expenses, making lifestyle decisions, and planning for loan installments. It represents the actual amount you receive after all deductions have been made from your gross salary.
CTC (Cost to Company) is the total amount a company spends on an employee in a year. This includes the gross salary, plus benefits like bonuses, insurance, and other perks.
Take home salary or in-hand salary is the amount that an employee gets after all the deductions are made to his gross salary.
So there are 3 terms to understand. CTC, gross salary, and take home salary.
CTC: The cost that a company pays towards hiring an employee. The salary package.
Take home salary: The actual amount that an employee receives in hand. Important because this is money that he can utilize immediately for any cash transactions.
Gross salary: Some part of an employee’s package is withheld for PF and other purposes. That also belongs to him but is not immediately available. When we add that to take-home salary, it becomes his gross salary.
It is important to understand that ‘salary package’ generally means more or less the CTC or the Cost To Company. And not an employee’s take-home salary.
Calculating your take-home salary involves understanding your gross salary, deductions, and allowances. Here’s a step-by-step guide using an example of a salary package of ₹8,00,000 (8L) per annum.
Component | Amount (INR) |
---|---|
Basic Salary | ₹3,20,000 |
HRA | ₹1,60,000 |
Special Allowance | ₹2,45,200 |
Employer PF Contribution | ₹38,400 |
Gratuity | ₹15,360 |
Total CTC | ₹8,00,000 |
To calculate the take-home salary from a CTC of 8 lakhs (800,000 INR), it is necessary to account for the deductions applied to the gross salary.
Component | Amount (INR) |
---|---|
Total Gross Salary | ₹7,46,400 |
Total Deductions | ₹94,593 |
Take-Home Salary | ₹6,51,647 |
The estimated take-home salary for a CTC of 8 lakhs would be approximately ₹6,51,000 per annum.
While HR professionals regularly use these terms, a new employee may not be well-versed with their usage. Sometimes they pretend to know and do not want to show their ignorance to a new employer. So make it a point to explain to them well what is their salary package and take-home salary.
Consider using automated payroll software like Opportune Payroll. It simplifies calculation of deductions and allowances.
It’s OK to ask specifically for your take-home salary. You are hired for the experience and skills relevant to job role. Not understanding the nitty gritty of HR and salary terms doesn’t hamper your reputation.
Even if you understand these terms well, all companies can have different ways of allocating allowances. So don’t get satisfied with your salary package. Request for a breakdown.
Smart employees often look for ways to increase their take-home salary. Here are some strategies:
CTC or salary package is not the same as take home salary. Balancing CTC and in-hand salary is essential for financial health. Understanding your salary structure and exploring ways to enhance your take-home pay will help you in getting more in-hand salary.