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      Understanding Your Salary Structure: CTC, Gross Salary, and Take Home Salary

      March 28, 2025

      10 min read

      Payroll
      Peush Jain

      postview Visited 25 times

      Understanding Your Salary Structure: CTC, Gross Salary, and Take Home Salary
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      Your Guide to Take Home Salary Calculation

      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.

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      Understanding the Importance of Take Home Salary

      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.

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      Difference Between CTC and Take Home 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.

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      Step by Step Guide on How to Calculate Take Home 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.

      Salary Structure Breakdown for CTC of Rs 8 Lakhs Per Annum

      1. Basic Salary:
        Typically, the basic salary is around 40-50% of the CTC.

        • Basic Salary: ₹3,20,000 (40% of CTC)
      2. House Rent Allowance (HRA):
        Usually 50% of the basic salary for metropolitan cities.

        • HRA: ₹1,60,000 (50% of Basic Salary)
      3. Provident Fund (PF):
        Employee contributes 12% of basic+ DA; employer contributes 12% as well.

        • Employer PF Contribution: ₹38,400 (12% of Basic Salary)
      4. Special Allowance:
        This component can vary and is used to make up the remaining CTC after fixed components.

        • Special Allowance: ₹2,45,200
      5. Gratuity:
        Calculated at 4.81% of basic salary; becomes applicable after 5 years of service.

        • Gratuity: ₹15,360 (4.81% of Basic Salary)

      Summary of Components

      ComponentAmount (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.

      Calculation Steps–

      1. Gross Components:
        • Basic Salary: ₹3,20,000
        • HRA: ₹1,60,000
        • Special Allowance: ₹2,66,240
        • Total Gross Salary: ₹3,20,000 + ₹1,60,000 + ₹2,66,240 = ₹7,46,240
      2. Employer Contributions:​​​​​​​​​​​​​​
        • Employer PF Contribution: ₹38,400 (not deducted from the take-home)
        • Gratuity: ₹15,360 (not deducted from the take-home)
      3. Deductions:
        • Employee PF Contribution: ₹38,400
        • Professional Tax: ₹2,500
        • Total Deductions: ₹38,400 + ₹2,500 = ₹40,900
      4. Taxable Income Calculation: To determine the income tax liability:
        • Total Gross Income = ₹7,46,240
        • Less: Deductions for EPF (₹38,400) and Professional Tax (₹2,500)
        • Net Taxable Income = ₹7,46,240 – ₹40,900 = ₹7,05,340
      5. Income Tax Calculation (Using FY 2023-24 tax slabs):
        Total Income Tax = ₹12,500 + ₹36,800 = ₹49,300

        • Up to ₹2.5 lakh: No tax
        • From ₹2.5 lakh to ₹5 lakh: 5% on ₹2.5 lakh = ₹12,500
        • From ₹5 lakh to ₹7.05 lakh: 20% on ₹2.05 lakh = ₹41,068
      6. Total Deductions Including Tax:
        • Total Deductions = Employee PF + PT + Income Tax
        • Total Deductions = ₹38,400 + ₹2,500 + ₹53,693 = ₹94,593
      7. Take-Home Salary Calculation:
        • Take-Home Salary = Total Gross Salary – Total Deductions
        • Take-Home Salary = ₹7,46,240 – ₹94,593 = ₹6,51,647

      Summary

      ComponentAmount (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.

      1. Gross Salary: Total earnings before deductions.
      2. Deductions: These may include tax, provident fund contributions, professional tax, etc.
      3. Allowances: Components like HRA (House Rent Allowance), medical allowance, etc., which can reduce taxable income.

      A note for HR managers and business owners:

      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.

      A message for the employees

      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.

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      Ways to increase your Take Home Salary

      Smart employees often look for ways to increase their take-home salary. Here are some strategies:

      1. Maximize Tax Deductions: Utilize sections like 80C for investments in PF or ELSS.
      2. Negotiate Allowances: Ask for higher allowances like HRA or travel reimbursements.
      3. Review Insurance Policies: Opt for policies that can provide tax relief while ensuring coverage.
      4. Plan Investments Wisely: Engage in investments that offer tax benefits to reduce taxable income.
      5. Consider Flexible Benefits: Work with HR to structure your salary package for optimal take-home pay.

      Conclusion: It’s important to understand difference between CTC and Take Home Salary

      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.

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