CTC, or Cost to Company , is the total amount of benefits provided by the employer to an employee. Benefits here, includes both monetary and non-monetary benefits (also known as gross salary). 

Take home amount is the salary that is credited to your bank account (also known as net salary). It is the total amount paid after all the deductions. 

Differences between CTC and take home arises primarily because of the deductions made and non-monetary benefits provided by the employer. The following article explains in detail, gross salary, net salary and how to arrive at net salary from gross salary.

The new Income Tax Bill has been tabled by the Honorable Finance Minister in the Lok Sabha. It aims to simplification and better presentation of the provisions.

As per the budget 2025, the income up to Rs. 12 lakhs will have zero tax liability for the FY 2025-26 (AY 2026-27) under the new tax regime. Here's how:

The revised tax slabs under the new regime for FY 2025-26 (AY 2026-27) are as follows:

Annual Income Tax Slabs	Income Tax Rates
Up to Rs. 4 lakhs	NIL
Rs. 4 lakhs - Rs. 8 lakhs	5%
Rs. 8 lakhs - Rs. 12 lakhs	10%
Rs. 12 lakhs - Rs. 16 lakhs	15%
Rs. 16 lakhs - Rs. 20 lakhs	20%
Rs. 20 lakhs - Rs. 24 lakhs	25%
Above Rs. 24 lakhs	30%

With the revised tax structure, individuals earning up to Rs. 12,00,000 will have no tax liability due to the increased rebate of Rs. 60,000. For salaried individuals, the tax liability will be zero for incomes up to Rs. 12.75 lakhs due to the Rs. 75,000 standard deduction.

Note:

• The marginal relief on rebate is still applicable. 
• The rebate is not available for income that is taxed at special rates (e.g., capital gains under section 112A).

Gross Salary

• CTC (Cost to Company) is the total amount your employer spends on you. 
• It includes components like your gross salary, employer's provident fund (EPF) contributions, gratuity, bonuses, and other benefits like health insurance, food coupons, etc.

Various Components of Gross Salary

Direct Benefits

Basic salary

• Basic salary refers CTC excluding all allowances and perquisites paid to an employee. 
• The basic salary is not subject to any deductions or qualifies for any exemptions. 
• Almost always, an individual’s basic salary is lower than the take-home salary or gross salary. 

House Rent Allowance (HRA)

• House Rent Allowance (HRA) is provided to the employee to cover the cost of accomodation. 
• There are provisions in Income Tax Act providing exemptions for House Rent Allowance.

Leave Travel Allowance (LTA)

• Leave Travel Allowance is provided bear the cost of tour and travel on holidays.
• Under the old regime, exemptions can be claimed for Leave Travel Allowance given.

Leave Salary or Leave Encashment

• The employees are provided paid leave during their employment.
• If the paid leave is not utilised, the cash equivalent could be drawn encashment or the leave can get lapsed as well, depending on the employer's policies. 
• Similar to Leave Travel Allowance and House Rent Allowance, tax exemptions are available for leave encashment as well. 

Variable Pay 

• Variable pay is the part of CTC, which varies according to the employees performance in the company. 
• There can be various performance metrics, ranging from the period of service to the competence, measured by various criteria.

Perquisites

• Perquisites are benefits provided to an employee in addition to the basic salary and specific allowances. 
• These perquisites are monetary or non-monetary benefits payable in addition to the salary and allowances to an employee.
• These benefits received by an employee as a direct result of his/her stature in an organization.

Salary Arrears

•  An employee becomes entitled to arrears due to the increment in the salary. 
• Arrears can be defined as an amount paid to an employee as a result of an increment or hike to their salary.

Other Direct Benefits

• Telephone or mobile phone allowance
• Vehicle allowance
• Special allowances

Indirect Benefits

• Performance-linked incentives or bonus
• Overtime payments
• Accommodation provided by the employer
• Utility bills such as electricity and water are paid by the employer
• Arrears of salary
• Meal coupons

Take-Home Salary

• After making all the deductions and non monetary perquisites from the CTC, the rest of the money that is credited to the bank account, is called net salary.
• The primary differential factors between gross salary and take home salary are deductions arise due to deductions. Popular deductions made by the employer are:
  • Tax Deducted at Source (TDS)
  • Provident Fund (PF)
  • Employee State Insurance (ESI)
  • Gratuity
  • Health Insurance
  • Other benefits provided by the employer.

Other Benefits Provided by an Employer

Certain expenses an employer incurs to ensure the welfare of the employees in the organisation are not included in an employee's CTC.

Examples of such components are:

• Snacks, beverages, and other refreshments are provided by the employer during office hours.
• Reimbursement of expenses incurred by the employee on travel and food during official/business tours.

How to Calculate Gross Salary and Net Salary?

To understand the calculation of gross salary and net salary better, let us take the help of an example:

Arun works at an IT firm. His gross salary per annum is Rs 6.2 lakhs while his net take-home is just Rs 5.93 lakhs.

Let’s take a look at his salary components:

Calculation of Cost to Company to Take-home Salary

The salary calculations involve multiple components, so you need different formulas to calculate each aspect of your salary. Here are the most important formulas you must understand:

Gross salary: CTC – Employer PF – Gratuity Provision
Take-home Salary (Net Salary Post Taxes): Gross Salary – Income Tax – EPF Contribution – Professional Tax - Health insurance

Related Articles

1. Calculating in-hand salary from CTC