This is a very debatable and confusing topic for most of us. You must have heard individuals boasting a fancy CTC but the actual take home turns out to be disappointing. So, how do we differentiate between the CTC and take home. This is the most common problem in the private sector. Employer, in order to lure you for a better CTC ends up exploiting by giving a comparatively low take home salary. So, for most of those working in the IT and private sector, it is wiser to negotiate on your take home rather than the CTC.
Now, the question which arises in mind is how there is so much of difference in the CTC and take home salary. Imagine an individual being offered a CTC of 4.00 lacs, ending up taking monthly salary of 20,000 INR only. This is a huge difference and you might wonder where the rest of the money went.
Well, every organization will have their own salary structures. Some organization will have the comparable CTC as per the take home. However, some organizations will include Insurance, variable pay, etc. to your CTC and that makes your take home quite less.
In general, you take home includes your basic pay + HRA + travel allowance + medical allowance + special allowance in the earnings side. On the deductions side, you will have PF + Professional tax + Income tax TD.
Apart from that you might have food allowance, internet allowance, mobile phone allowance, bonuses, etc. Whether these are fixed monthly or not, is decided by the employer. On the deductions side, you might have insurance, welfare fund, etc. This is also as per individual organization policy.
So basically, if you add and deduct the above, you would get around a net salary that you can take home.
However, this net salary does not include the variable pay, the PF and gratuity contribution from the employer side, any bonuses or allowance, insurance of any other kind, etc. When these components are added to your net salary, your CTC looks inflated.
So, it all depends on the benefits that the individual organization is providing which brings the difference in CTC and take home. The more the benefits provided by the organization being added to your salary, the less will be your take home.
Let’s take a simple example of travel allowance. In general, employer will provide a travel allowance of 1600 INR every month for an employee. So, it will be added to your take home. But suppose, the employer is providing cab facilities to the employee, then in that case it will not be part of your take home. Thus, your take home would be less by 1600 INR. Similarly, the other benefits are also counter balanced, depending upon how the benefits are provided to you.
Illustration for understanding the difference between CTC and take home:
Suppose you are getting a salary of 30,000 INR per month take home and your CTC is 4,73,000 INR per annum. Multiplying 30,000 * 12 gives you 3,60,000 INR per annum. The rest 36,000 form a part of the PF (only you), income tax and the professional tax. This make the total of 3,96,000. This is the most basic structure.
But your CTC is 4,85,000. So, the rest amount will be contribution from the employer towards EPF and gratuity, insurance, variable, etc.
Consider EPF and gratuity, which would be around (1800*12) + (1300*12) = 21,600 + 15,600 = 37,200 INR. This is also added to your gross salary. Suppose you have a variable component of 25,800 INR and an insurance of 14,000 INR. Adding the three, it will come around 77,000 INR. This will make your Gross CTC look much more than what you would be withdrawing.
The interesting thing to note here is that if you divide 4,73,000 INR by 12, you would get around 39, 417 INR which is way more than the take home of 30,000 INR. Thus, it is always advisable to negotiate on your take home rather than CTC.
Note: The above calculations are done for illustration purpose. In no way, does it reflect the salary structure of any employee and the proposed salary offered by any of the employer(s). The above figures and calculations are only for your understanding.
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