What Is CTC, Gross And Net Salary? (2024)

If you have just started working and are confused as to how much exactly you will earn at the end of the month, don’t worry. We’ll explain all that there is to know about CTC and the maths of salary packages in this article.

What Is CTC?

CTC stands for “Cost to Company”, which, in accounting and finance, means the total cost that a company incurs on hiring an employee. It is the amount that each company spends on its employees from the company’s point of view.

CTC is cumulative of several smaller amounts. Some make up the salary that an employee receives in their account, while others are intangible expenses that a company spends on its employees.

Simply put,

CTC = Basic Salary + Dearness Allowance + House Rent Allowance + Conveyance Allowance + Medical Allowance + Special Allowance + Employer’s Contribution to Provident Fund + Employee’s Contribution to Provident Fund + Employer’s Contribution to Employee State Insurance + Performance Bonus + Other Allowances + Gratuity

The components of CTC have been explained in detail later.

What Is Gross Salary?

Gross salary is often confused with CTC. However, there’s a difference between the two.

Gross salary is the amount that is payable to the employee before the deduction of taxes and after the deduction of the Employee Provident Fund (EPF) contribution and gratuity subtracted from the CTC.

Direct and indirect benefits, overtime salary, and other differentials are included in gross salary.

Gross Salary = CTC – Employer’s Contribution to Provident Fund – Employer’s Contribution to Employee State Insurance

What Is Net Salary? How Do They Differ From Gross Salary and CTC?

Net salary is the salary that an employee receives in-hand or in their bank account after the tax deduction.

Net Salary = CTC – Employee’s Provident Fund Contribution – Gratuity – Income Tax (TDS) – Other deductions if any such as Insurance premium, Loan repayment or any other authorized deductions

So, the difference between CTC and in-hand salary lies in the PF contribution, gratuity, and income tax deductions.

What Is The Difference Between Gross Salary And CTC?

Cost To Company, commonly referred to as CTC, is the total cost companies spend for hiring and retaining employees.CTC includes your salaryalong with all the other benefits the employer pays, including EPF, HRA, medical insurance, and other allowances. CTC may also include cab service, subsidized loans, food coupons, and much more.

So, CTC is the total expense of your employer for sustaining your services. The amount varies among companies, based on the number of benefits. Moreover, your take-home salary depends on the CTC.

On the other hand, the 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 such as EPF contribution, taxes, and others.

It includes holiday bonuses, overtime pay, and any other additional amount offered by the employer.

To determine your gross salary, you lmust know the gratuity and EPF amounts.

  • Gratuity: Section 10 (10) of the Income Tax Act, 1961 mandates that an employee is entitled to receive a gratuity if he or she completes at least five years in a company. Your employer will pay the gratuity amount at the end of your employment tenure. Apart from retirement, you will get the gratuity amount when leaving the company to seek employment elsewhere.
  • EPF: The Ministry of Labor mandates this benefit. You must contribute a minimum of 12% of your salary to the EPF. Your employer also contributes the same amount to the EPF account. You may withdraw the entire accumulated amount at the time of retirement.

How to Calculate CTC, Gross and Net Salary?

Calculating CTC, gross and net salary is pretty simple if you have identified all the components correctly and accurately.

We’ll suppose that Disha has applied to Firm X for a job and received a pay package, of which the details are given below:

Salary ComponentAmount (Annual, INR)
Basic Salary5,00,000
Travel Allowance50,000
House Rent Allowance45,000
Medical Allowance45,000
Leave and Travel Allowance60,000
Provident Fund Contribution84,000

Now, Disha’s CTC is the total of all the direct benefits listed, which amounts to INR 7,00,000. Reduce that amount by the gratuity and PF contribution to arrive at the gross salary.

So, as per the gross salary formula:

Gross Salary = 7,00,000 – (84,000 + 29,629) = INR 5,86,371

Now, subtract from this value, the total income tax, which is calculated at 5% from INR 2.5 lac to 5 lac and 10% from INR 5 lac to 7.5 lac.

Net Salary = 5,86,371 – 33637 = INR 5,52,734

What Are the CTC Benefits and Allowances in India?

Direct Benefits:

Direct benefits include the amount that is explicitly paid by the employer to the employee. They include:

1. Basic Salary

The basic salary is an amount that makes the core of an employee’s salary. It constitutes a major chunk of the salary that an employee receives, sometimes more than 45% of the total amount.

2. Dearness Allowance

Inflation is the phenomenon that causes the price of general goods to rise by a certain amount every year. If the general price increases, so should an employee’s salary if they are to survive comfortably.

Hence, employers provide a dearness allowance – a basic cost of living adjustment that alleviates the pinch of inflationary pressure one might feel in their pockets.

3. Conveyance Allowance

Employees have to travel to and from their residences to their workplace each day, and over the course of a year, the cost incurred for this commute racks up to a large amount.

Therefore, most employers include a conveyance allowance to reimburse the cost that an employee incurs on their commute. It generally makes up a small percentage of the total salary.

This allowance is provided only in cases where the employer does not provide a means of transportation to the employee.

4. House Rent Allowance (HRA)

HRA, comprising roughly 10-15% of the total in-hand salary, is an amount paid by the company to reimburse the employee if they are living in a rented space. This allowance usually entails certain tax benefits too.

HRA is a part of an employee’s salary, irrespective of their rent status. In case you are actually paying rent, you can claim the amount later, which is tax-free.

But if not, the HRA becomes just another part of your salary. You can spend this amount as you please, but the amount is fully taxable.

5. Medical Allowance

Medical allowance, like HRA, is an amount paid by the employer to the employee every month, irrespective of their health status. The employee can use this amount as they please.

Thinking that medical allowance is the same as medical reimbursement is a common misconception. These terms are often used interchangeably, but they imply two very different types of payments.

While medical allowance is paid by the employee every month as a part of one’s salary, medical reimbursement is used to refer to the amount that is paid by the employee against the submission of relevant bills. This is a “reimbursement”, and, therefore, warrants proofs of payment.

Other than that, under the Income-tax Act, 1961, medical allowance is a non-exempted payment, making it fully taxable. On the flipside, medical reimbursement falls under the ambit of Section 80D, and an amount up to INR 15,000 is tax-free.

Indirect Benefits:

The second component, indirect benefits, comprises payments made by the employer on behalf of the employee.

1. Health Care Costs

Formal salaried employees are more often than not provided health care benefits, which include health insurance. Sometimes, this insurance covers the employee as well as their family members.

2. Taxis/Buses for Commute

Although we’ve already listed conveyance allowance as a part of direct benefits, that amount is only paid when there’s no conveyance provided by the employer. The other side of that is employers shelling out money on their own to charter buses or taxis for their employees.

3. Low-Interest Loans

Bank employees are allowed loans at a special, subsidised rate.

4. Meals and Snacks

Modern office spaces are equipped with meal and snack outlets for the employees to enjoy. This perk is paid for by the company on the employee’s behalf.

5. Office Space Rent

Some companies attribute a certain amount of rent to the space that a particular employee is using in the office. This is termed office space rent.

For instance, if the firm spends INR 1,00,000 on rent each month, and there are 20 cubicles in the office, the office space rent for each employee turns out to be INR 5,000.

6. Company Leased Accommodation

Many firms offer to find and pay for the residence an employee might take, especially if they are relocating for the job. This is called Company Leased Accommodation, and the rent for that place is paid for by the firm.

Savings Contributions:

1. Gratuity Amount

Gratuity is paid at 4.81% per annum as per Indian statutes. Withdrawal is prohibited before 5 years, and if an employee leaves the firm before completing 5 years, they lose their accumulated gratuity.

2. Employer Provident Fund Contribution

12% of the basic salary of an employee goes towards their PF account directly from the employer.

3. Superannuation

A pre-defined amount is contributed by the employer to an account in the employee’s name. This can be withdrawn at the time of retirement.


Net salary is the amount that an employee receives at the end of the month, and it can vary a great deal from the initial CTC because of a lot of elements.

CTC includes within its purview both explicit and implicit costs that a firm incurs on a worker, some of which might not be directly paid to the worker, but they do benefit from them.

What Is CTC, Gross And Net Salary? (1)

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What Is CTC, Gross And Net Salary? (2)

What Is CTC, Gross And Net Salary? (2024)


What is CTC when applying for a job? ›

CTC = Direct Pay+ Indirect Pay+ Variable Pay+ Statutory and Savings Contribution. In other words, this is the amount that the company budgets as cost for its employees under the head Employee Salaries. Why is Net or Take-Home Pay different from CTC?

What is the gross annual salary? ›

Gross pay is the total amount of money an employee receives before taxes and deductions are taken out. For example, when an employer pays you an annual salary of $40,000 per year, this means you have earned $40,000 in gross pay.

How to calculate gross salary in C program? ›

To find a Gross Salary Program in C of an Employee we need to calculate DA and HRA Then the Sum of Basic Salary + HRA + DA. after calculating the sum print the sum. So basically first we calculate a DA, and HRA after that we add Gasic Salary + HRA +DA so, in this way, we can find the Gross salary of an employee.

How do you calculate net salary? ›

Net pay is the take-home pay an employee receives after you withhold payroll deductions. You can find net pay by subtracting deductions from gross pay.

What are your salary expectations best answers? ›

How to Answer The Salary Expectations Question
  • Research the standard pay for a similar role in your location. ...
  • Learn how much people in similar roles make. ...
  • Try to find how much the company pays people in your prospective position.

What is your salary expectation sample answer for no experience? ›

As a fresher, my first priority is to enhance my skills, knowledge, and experience. Coming to my salary I will go according to the company's norms. I will expect a considerable salary for this position that will help me to achieve my economic needs.

Is salary based on gross or net? ›

Gross is an employee's total earnings, such as wages or salary, while net pay is their earnings minus payroll deductions, including taxes, benefits and garnishments. Net pay is the paycheck amount an employee takes home.

Is annual salary based on gross or net? ›

If you're a salaried employee with one income source, your gross pay is your annual salary before taxes. If you're an hourly employee with one income source, you can multiply the number of hours you work by your hourly rate to find your gross pay.

How do I calculate my gross income? ›

How to calculate gross monthly income
  1. Add up W-2 wages for the month. Tally up the gross pay or income listed on each of your paystubs for a given month.
  2. Sum additional sources of income. ...
  3. Add the total income together.

How do you calculate gross pay from monthly salary? ›

Divide your salary or multiply your hourly wages

If you earn a salary, you can take the total value of your salary and divide it by 12, the number of months in the year, to find your gross monthly income.

How to calculate Gross salary and net salary of an employee in C program? ›

C Program to calculate gross salary of a person.
  • #include<stdio.h>
  • int main() {
  • int gross_salary, basic, da, ta;
  • printf("Enter basic salary : ");
  • scanf("%d", &basic);
  • da = (10 * basic) / 100;
  • ta = (12 * basic) / 100;
  • gross_salary = basic + da + ta;
Aug 2, 2014

What salary is 4000 a month? ›

Frequently Asked Questions. $4,000 a month is how much a year? If you make $4,000 a month, your yearly salary would be $48,006.40.

What is the gross monthly income? ›

For individuals, gross monthly income is the total amount of money received in a given month before any deductions, including taxes. The sum of your gross monthly income comprises financial earnings from all available sources, including but not limited to: Regular wages or salary. Overtime, bonuses or commissions.

What's my monthly net income? ›

Your net pay is essentially your gross income minus the taxes and other deductions that are withheld from your earnings by your employer. Your net pay each pay period is the final amount on your paycheck. Your annual net pay is your salary minus the money that's withheld throughout the year.

What is a CTC employee? ›

Cost to company (CTC) is a term for the total salary package of an employee, used in countries such as India and South Africa. It indicates the total amount of expenses a company (organisation) spends on an employee during one year.

What does CTC stand for in texting? ›

CTC is an acronym often used in chat rooms. CTC is an online term that stands for "Care To Chat or Contact", this type of abbreviation is also known as text message abbreviation. CTC is primarily used in instant messaging, e-mails, online chat, text messaging, blogs and newsgroup postings.

What is cover letter for job? ›

What is a Cover Letter? (and Why It's Important) A cover letter is a one-page document that you submit as part of your job application (alongside your CV or Resume). Its purpose is to introduce you and briefly summarize your professional background. On average, your cover letter should be from 250 to 400 words long.

What is your expected compensation meaning? ›

Another reason employers may ask this question is that they want to evaluate your expectations for the company. Your compensation expectations apply not only to your starting rate but also to what you may receive in the future through promotion and other compensation benefits.


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