How to Find Your In-Hand Salary Based on Your CTC

If you are an employee or a fresher looking for a job, you should know that your offer letter will have details of the Cost to Company (CTC). As the name suggests, CTC refers to the amount that the company bears to hire an employee. CTC will have many components in its total structure; however, understanding each component is complex.

Difference between CTC and gross salary

CTC is the total amount spent by a corporation to hire and keep you as an employee. It covers your pay as well as all of your perks, such as EPF, HRA, medical insurance, gratuity, and other allowances. CTC may also include transportation services, low-interest loans, food coupons, and other benefits.

Gross salary is the amount that remains after subtracting gratuity and EPF from the CTC. The gross salary is always higher than your take-home salary as the amount is calculated before deductions. It includes your bonus, overtime pay, and any other additional benefits offered by your company.

Points to remember for CTC

• CTC is not your take-home salary. As mentioned, CTC contains many components like house rent allowance, dearness allowance, and other monetary and non-monetary allowances. 
• Annual appraisals and hikes are usually provided based on your CTC.  
• There are several components of CTC. However, the components of CTC vary from employer to employer. For instance, government employers can have a different CTC structure compared to private-sector employers.

Components of CTC

1. Grade pay-The government sector usually pays grade pay to its employees. This payment is based on the seniority of the employee.
2. Basic Pay-This is the main component of the CTC structure. It is a fixed component of the salary and usually comprises 40% to 50% of the total CTC. Many other CTC components like contribution to provident fund, gratuity and others are determined by the basic salary.
3. Allowance-Allowance is a fixed amount provided as a part of CTC by the employer to meet a particular type of expenditure incurred by the employee. Allowances can be partially taxable, fully taxable or non-taxable depending on nature. Some allowances depend on the employee’s designation, whereas some are offered to all employees irrespective of designation.
4. Dearness Allowance– Government employers generally provide this allowance as a percentage of basic salary to meet the rise in inflation over a quarter. The % of dearness allowance depends on the inflation rate of the economy. 
5. HRA-HRA is known as a house rent allowance. It is provided as a part of the rent expenditure incurred by the employee for residence. The HRA component offered is different for different cities, even by the same employer. HRA allowance is partially exempt as allowed under the income tax act.
6. Conveyance Allowance– Allowance allowed for incurring the expenditure to travel from home to the workplace.
7. Medical Allowance-This allowance is provided as a part of CTC. One can claim tax exemption against this allowance by submitting medical bills at intervals specified by the employer. Usually, the exemption for medical allowance can be claimed for the medical expenses incurred for self, spouse, children and dependent family members.
8. Leave Travel Allowance-Some employers to provide a leave travel allowance as a part of their CTC. An exemption is allowed for the travel fare subject to conditions as laid down in the act. This year the government has introduced an LTC cash voucher scheme that allows you to claim the benefit of LTA on purchasing goods or services as specified. 
9. Training, telephone, books and periodicals allowances- Many companies provide a separate portion of the CTC for incurring external training expenditures, mobile bill payments and the purchase of books/periodicals.
10. Special allowances- Some employers offer special allowances to adjust the amount of total CTC given to employees. This is a fully taxable allowance.
11. Provident Fund-A portion of the salary gets deposited in the PF account of the employee. Employer and employee together contribute to the contribution. The contribution to the PF account is 12 per cent of the basic pay. 

The CTC structure can contain other allowances as per the employer’s policy, which may include children's education or hostel allowance, uniform allowance, daily allowance, tour allowance, food coupons etc. An employee can claim the exemption for such allowances by submitting the bills or proofs of expenditure to the employer before the end of the financial year to claim exemption.  

Some employers also include variable compensation like performance bonuses, a percentage of commission on sales etc., as a part of the total salary. 

Calculation of Cost to Company

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 – EPF – Gratuity
Gratuity: (Basic salary + DA) × 15/26 × No. of years you have worked for the company
Taxable income: Gross Salary – EPF/PPF Contribution – Tax-free Allowance – HRA – LTA – Health Insurance – Tax-saving Investments – Other Deductions
Take-home Salary (Net Salary Post Taxes): Gross Salary – Income Tax – EPF Contribution – Professional Tax

Calculations making your life difficult? Don't worry. Try our take-home salary calculator

How to calculate the monthly in-hand salary?

Your monthly in-hand salary is the amount that remains after all deductions from your gross compensation has been made.

For example, if your CTC is Rs 7.5 lakh and your firm pays you Rs 50,000 as a bonus each year, your annual salary is

Gross Salary = CTC + Bonus = Rs 7.5 lakh minus 50,000 = Rs 7 lakh

To calculate your total salary deductions, do the following:

The yearly professional tax must be deducted from the gross salary. The amount of professional tax varies by state (we'll assume Rs 2,400 in your state).

You must subtract the entirety of your and your company's EPF contributions. Your EPF contribution is matched by your employer. EPF contributions are determined based on a monthly salary of Rs 15,000 maximum.
Your monthly EPF contribution = 12% of Rs 15,000 = Rs 1,800

Your yearly EPF contribution = Rs 1,800 x 12 = Rs 21,600

Your company's annual EPF contribution is Rs 21,600

Let’s assume your employee insurance deduction is Rs 2,000 per year.

Professional tax + EPF (employer + employee) + insurance = Rs 2,400 + Rs 21,600 + Rs 3,000 = Rs 48,600.

Overall annual take-home pay = gross salary - total deductions = Rs 7 lakh - Rs 48,600 = Rs 6,42,400.

Monthly take-home pay = Yearly salary divided by 12 = Rs 6,42,400 divided by 12 = Rs 53,533.

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