CTC vs Gross Salary vs Net Salary: Understanding the Key Differences, Calculation, and Take-Home Pay in India

Ever wondered why your pay check doesn’t always match the salary you were promised? The answer lies in the terms CTC, gross salary, and net salary. These terms are often used interchangeably, but they represent different amounts of money. In this guide, we’ll break down the differences between these terms, helping you understand what you’re actually taking home each month.

What Is CTC?

Cost to Company (CTC) refers to the total expense a company incurs for employing an individual. It includes various components beyond just the basic salary. These components typically consist of allowances such as House Rent Allowance (HRA), Provident Fund (PF), and Medical Insurance.

In addition to these standard benefits, CTC can cover perks like free meals or meal vouchers (like Sodexo), office space rent, transportation services to and from work, and even subsidised loans. When you add all these elements together, you get the complete Cost to Company.

In simple terms, CTC represents what a company spends on hiring and supporting an employee. It can change based on different factors, which means the employee’s take-home pay can also vary. To align their expectations with reality, individuals can compare their CTC with the actual salary they receive.

The formula to calculate an employee’s Cost to Company (CTC) is: 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 refers to the total amount of money an employer pays an employee before any deductions, like taxes or retirement contributions. It’s the full payment for your work, representing the financial offer from your company in return for your efforts.

When people talk about the Cost to Company (CTC), they mean the complete gross salary plus any additional benefits. However, the amount you actually take home, or net salary, is lower because it doesn’t include these deductions. In simple terms, gross salary is your monthly or yearly pay before anything is taken out.

What is Net Salary or Take Home Salary?

Net salary is the amount of money an employee takes home after all deductions are made from their gross salary. This includes taxes, insurance, retirement contributions, and any other withholdings. Essentially, it’s what you actually receive in your pay check and can spend or save.

What Is The Difference Between CTC and Gross Salary?

What Is the Difference Between CTC and Gross Salary is that CTC (Cost to Company) is the total amount an employer spends on an employee, including salary, allowances, and benefits like PF, insurance, and gratuity. Gross Salary is the total amount earned before deductions, including basic salary and allowances. CTC is higher than Gross Salary, and Gross Salary is higher than Net Salary (take-home salary after taxes and deductions).

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.

Let’s take an example – Let’s say that Disha has applied to Firm X for a job and received a pay package, of which the details are given below:

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

Difference between CTC, Gross Salary & Net Salary

1. CTC (Cost To Company) = 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
2. Gross Salary: Gross salary is the amount that is payable to the employee before the deduction of taxes, the Employee Provident Fund (EPF) contribution, other deductions and the gratuity from the CTC.
3. Net Salary (In-hand salary)= CTC – Employee’s Provident Fund Contribution – Gratuity – Income Tax (T DS) — Other deductions if any such as Insurance premium, Loan repayment or any other authorized deductions

   Aspect	CTC (Cost to Company)	Gross Salary	Net Salary
   Definition	This is the total amount that a company spends on an employee. It includes everything like salary, benefits, allowances, and taxes.	This is the full salary amount before any deductions are made. It doesn’t include taxes or other reductions.	This is the actual amount that an employee takes home after all deductions have been applied.
   Components	The components include basic salary, different types of allowances, bonuses, incentives, benefits, and any contributions the employer makes.	Gross salary includes basic salary along with allowances, bonuses, and any additional compensation before deductions.	Net salary consists of basic salary and allowances but minus all the deductions.
   Taxation	The CTC is subject to various taxes based on specific tax brackets. Different components may be taxed differently.	Gross salary is also taxed according to different slabs that apply to each part of the salary.	Net salary is taxed based on the total income after all deductions, again following the applicable tax brackets.
   Deductions	Deductions from CTC may include contributions to the provident fund, health insurance, income tax, and professional tax.	Similar deductions apply to gross salary, which may include contributions to provident funds and health insurance premiums.	Net salary typically has deductions such as income tax, professional tax, and employee provident fund contributions, depending on the individual’s situation.
   Take-home Salary	N/A	N/A	This is the final amount that gets credited to the employee’s bank account after all deductions have been made.

   What Are the CTC Benefits and Allowances in India?

   1. 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.

   2. 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.

   3. 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.

   Conclusion

   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.

   FAQs

   How is gross pay calculated?

   General calculation:

   Gross Pay = Cost to Company (CTC) – Employer’s Contribution to Provident Fund – Employer’s Contribution to Employee State Insurance.

   What does gross pay include?

   Gross Pay includes Basic Salary, Dearness Allowance, House Rent Allowance, Conveyance Allowance, Medical Allowance, Special Allowance, Performance Bonus, Other Allowances, and Gratuity. It varies from organization to organization.

   Why is income called gross?

   Income is called gross interchangeably with gross pay or gross salary as the word ‘gross’ here means ‘large’ amount as per its etymology. The word ‘gross’ came from the word, ‘grossus’ in French meaning thick/ massive/ large. As gross income has other deductible aspects to it, the gross income is usually a bigger part with deductions like employer’s contribution and other deductions.

Written and Reviewed by:

Priyanka Rao

Author

Priyanka Rao is a content strategist for Jupiter.Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys traveling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.

Colin D'Souza

Financial Content Reviewer

Colin D'Souza is currently the Vice President of Banking Programs and Strategy at Jupiter Money, where he oversees the development and execution of key banking initiatives. With a strong background in retail banking, sales, and strategy, Colin brings extensive experience in driving business growth and enhancing customer engagement across various financial products and services.

Before joining Jupiter, Colin was the Head of Corporate Salary Business at IDFC First Bank, having previously served as the Zonal Business Head for Retail Liabilities & Branch Banking. His leadership at IDFC First Bank focused on expanding the bank’s retail banking footprint and optimizing branch operations. Prior to that, he held senior roles at Citibank India, where he was Vice President and Regional Sales Head, responsible for the sales and distribution of consumer assets and liabilities, including services for high-net-worth individuals (HNI) and ultra-high-net-worth individuals (UHNI), as well as current accounts.

Colin also served as Vice President and Regional Sales Manager at HSBC, leading retail liability acquisitions and driving business development for investment and insurance products. Earlier in his career, he managed a cluster of branches at CitiFinancial, where he was responsible for credit, risk, and P&L management.

He holds a Post Graduate Diploma in Management from the Institute of Management Education and Research (IMER), adding a solid academic foundation to his professional expertise in banking and strategy.