{"id":4290,"date":"2023-03-12T14:37:03","date_gmt":"2023-03-12T09:07:03","guid":{"rendered":"https:\/\/razorpay.com\/learn\/?p=4290"},"modified":"2023-09-13T11:33:37","modified_gmt":"2023-09-13T06:03:37","slug":"cost-to-company-ctc-vs-take-home-salary","status":"publish","type":"post","link":"https:\/\/razorpay.com\/payroll\/learn\/cost-to-company-ctc-vs-take-home-salary\/","title":{"rendered":"Cost to Company (CTC) vs Take Home Salary: Components, and Calculation"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">When negotiating the final salary with a prospective employee, you often come across terms like \u2018<strong>Cost to Company<\/strong> <strong>or <\/strong><\/span><b>CTC<\/b><span style=\"font-weight: 400;\">,\u2019 \u2018<\/span><b>Take Home Salary<\/b><span style=\"font-weight: 400;\">,\u2019 and <\/span><b>\u2018Basic\u2019<\/b><span style=\"font-weight: 400;\"> in their salary breakdown. While the gross figure at the end of the calculation matrix may look a lot like what your employee dreams of, the actual figure you get in hand is far from it.<\/span><\/p>\n<p>To make yourself a master negotiator and ensure that you are paying your employee right, understanding how the salary system works is important. The difference between take home salary and CTC <span style=\"font-weight: 400;\">is acknowledged by all; however, few know the rationale behind this mathematics.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So, to understand the nitty-gritties as an employer, you must first learn the basics of overall salary. Next, how this total amount in the employee\u2019s hand is finally calculated.<\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69d8b6c892d4f\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d8b6c892d4f\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/razorpay.com\/payroll\/learn\/cost-to-company-ctc-vs-take-home-salary\/#Difference-between-Cost-to-Company-CTC-and-Take-Home-Salary\" >Difference between Cost to Company (CTC) and Take Home Salary<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/razorpay.com\/payroll\/learn\/cost-to-company-ctc-vs-take-home-salary\/#Components-of-Cost-to-Company-CTC\" >Components of Cost to Company (CTC)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/razorpay.com\/payroll\/learn\/cost-to-company-ctc-vs-take-home-salary\/#Calculation-of-Take-Home-Salary\" >Calculation of Take Home Salary<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/razorpay.com\/payroll\/learn\/cost-to-company-ctc-vs-take-home-salary\/#Takeaway\" >Takeaway<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/razorpay.com\/payroll\/learn\/cost-to-company-ctc-vs-take-home-salary\/#Simplify-salary-calculations-now\" >Simplify salary calculations now<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/razorpay.com\/payroll\/learn\/cost-to-company-ctc-vs-take-home-salary\/#What-are-you-waiting-for\" >What are you waiting for?\u00a0\u00a0<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Difference-between-Cost-to-Company-CTC-and-Take-Home-Salary\"><\/span>Difference between Cost to Company (CTC) and Take Home Salary<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The total salary matrix consists of a laundry list of entries to which different amounts from the whole are apportioned. Some of these entries are \u2013 basic, taxes, house rent allowance, perks, food allowance, provident fund, etc. All these entries form a part of one large umbrella called <\/span>CTC or Cost to Company.<\/p>\n<p>Now, what exactly is CTC?<\/p>\n<p>CTC in layman\u2019s language is the total cost that the company bears for an employee. All the components mentioned above form one whole of salary &#8211; termed as Cost to Company (CTC). These components are monetary as well as non-monetary.<\/p>\n<p>The biggest drawback about the CTC structure is that it includes many deductibles that form a part of the overall salary but do not come into the employee&#8217;s hands. This makes CTC look much more inflated. This is where the concept of take home salary comes in.<\/p>\n<p>Compared to the CTC, the take home salary is the amount that is finally deposited in the employees\u2019 bank account after all necessary deductions like PT, PF, TDS, etc.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Components-of-Cost-to-Company-CTC\"><\/span>Components of Cost to Company (CTC)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">1. The first and most important part of the CTC is the <\/span><b>basic salary<\/b><span style=\"font-weight: 400;\">. This is the amount that is payable to the employees for their services to the organisation. It forms a part of their take home salary and is subject to income tax.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Usually, employers make sure that the basic salary does not constitute more than 40% of the overall CTC.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">2. The next component of the <\/span>CTC<span style=\"font-weight: 400;\"> is <a href=\"https:\/\/razorpay.com\/learn\/income-tax-allowances-salaried-individuals-india\/\" target=\"_blank\" rel=\"noopener noreferrer\">allowances<\/a>. Allowances are all the perks and benefits (direct and indirect) that the company offers to the employee. These allowances are<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">\u00a0<\/span><span style=\"font-weight: 400;\">House Rent Allowance<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">\u00a0<\/span><span style=\"font-weight: 400;\">Dearness Allowance<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">\u00a0<\/span><span style=\"font-weight: 400;\">Medical Allowance<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">\u00a0<\/span><span style=\"font-weight: 400;\">Entertainment Allowance<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">\u00a0<\/span><span style=\"font-weight: 400;\">Conveyance Allowance<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">\u00a0<\/span><span style=\"font-weight: 400;\">Others<\/span><span style=\"font-weight: 400;\"> (<\/span><span style=\"font-weight: 400;\">as per the company\u2019s internal policies)<\/span><\/li>\n<\/ul>\n<p>All these allowances forming a part of the CTC are subject to different income tax rules. In India, the Income Tax Act lays down the rules for taxation of these allowances. Thus while structuring a prospective employees\u2019 salary, it is integral that you read up on these provisions to reduce employees\u2019 tax liability and make the most of the take home salary.<\/p>\n<p>3. The final part of CTC is the compulsory deductions. These deductibles are Provident Fund, <a href=\"https:\/\/razorpay.com\/learn\/professional-tax\/\" target=\"_blank\" rel=\"noopener noreferrer\">Professional Tax<\/a> (depending on the state where the organisation is located), and Income Tax (depending on employee\u2019s tax bracket).<\/p>\n<p>So, the total salary will now be:<\/p>\n<p><b><i>CTC = Basic + Allowances + Deductibles<\/i><\/b><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Calculation-of-Take-Home-Salary\"><\/span>Calculation of Take Home Salary<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The calculation from CTC to <\/span>take home salary<span style=\"font-weight: 400;\"> is done in several ways. Some of these methods are derived from the land and taxation rules laws, whereas others are determined through company policies and compensation structure.<\/span><\/p>\n<p><strong><em>Here is an example to better understand different salary components, CTC and how to calculate take home salary from CTC.\u00a0<\/em><\/strong><\/p>\n<table>\n<tbody>\n<tr>\n<td><span style=\"font-weight: 400;\">Basic<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Basic<\/span><\/td>\n<td><span style=\"font-weight: 400;\">2,67,477<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Allowances<\/span><\/td>\n<td><span style=\"font-weight: 400;\">House Rent Allowance\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">1,06,991<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><span style=\"font-weight: 400;\">Leave Travel Allowance<\/span><\/td>\n<td><span style=\"font-weight: 400;\">22,290<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><span style=\"font-weight: 400;\">Communication Allowance<\/span><\/td>\n<td><span style=\"font-weight: 400;\">36,000<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><span style=\"font-weight: 400;\">Gift<\/span><\/td>\n<td><span style=\"font-weight: 400;\">5,000<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><span style=\"font-weight: 400;\">Food coupons<\/span><\/td>\n<td><span style=\"font-weight: 400;\">26,400<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><span style=\"font-weight: 400;\">Other special allowance<\/span><\/td>\n<td><span style=\"font-weight: 400;\">2,71,515<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Gross Salary<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u00a0<\/span><\/td>\n<td><strong>735,673<\/strong><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Benefits\/Deductibles<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Medical Insurance<\/span><\/td>\n<td><span style=\"font-weight: 400;\">30,000<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Provident Fund (Employer\u2019s share)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">43,200\u00a0<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Total Benefits<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">73,200<\/span><\/td>\n<\/tr>\n<tr>\n<td><strong>CTC<\/strong><\/td>\n<td><strong>Gross + Benefits<\/strong><\/td>\n<td><strong>8,08,873<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The<\/span><span style=\"font-weight: 400;\"> row highlighted is your employee\u2019s total <\/span><strong>CTC. From this amount, the following adjustments are made further to determine the total take home salary.<\/strong><\/p>\n<p><strong><i>Take home salary<\/i><i> = [<\/i><i>CTC<\/i><i> \u2013 <a href=\"https:\/\/razorpay.com\/learn\/tax-deducted-at-source-tds\/\" target=\"_blank\" rel=\"noopener noreferrer\">TDS<\/a> \u2013 professional tax \u2013 <a href=\"https:\/\/razorpay.com\/learn\/employee-provident-fund-epf-scheme\/\" target=\"_blank\" rel=\"noopener noreferrer\">provident fund contribution (employer&#8217;s + employee&#8217;s share)<\/a> \u2013 any other expenses]<\/i>\u00a0<\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Takeaway\"><\/span>Takeaway<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Negotiating salary is one of the toughest bones of contentions between an employer and employee. While as an employer, you may seek to get the best from a prospective resource at the best possible cost, you must also ensure that you\u2019re not underpaying talent in any way or are doing any practices that can result in a possible case of exploitation.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As an employer, it is your job to take prospective employees through every entry in their salary matrix and make sure they are clear and agreed upon.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Simplify-salary-calculations-now\"><\/span>Simplify salary calculations now<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">You can simplify salary calculations and avoid all the confusion by using an online payroll software, like <a href=\"https:\/\/razorpay.com\/payroll\/?r=blog_ctcvstakehome\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">RazorpayX Payroll Software<\/a>.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">RazorpayX Payroll automates salary calculations and timely disbursals after necessary deductions like PT, PF, TDS, etc. It eliminates manual intervention and the risk of clerical errors while executing payroll.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The software combats compliance pain by automating payments of PF, PT, ESI &amp; TDS, and filing their periodic returns.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Further, employees get access to their own account, making it easy for them to download payslips and Form 16, apply for leaves, request reimbursements, etc.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Additionally, it offers best-in-class group health insurance for employees of small businesses even if the employee count is 2.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"What-are-you-waiting-for\"><\/span>What are you waiting for?\u00a0<span style=\"font-weight: 400;\">\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Get rid of all the ambiguous CTC calculations! Set up and automate a standard payroll process with RazorpayX Payroll, now.\u00a0<\/span><\/p>\n<div style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/payroll.razorpay.com\/signup?r=blog_ctcvstakehome\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Automate your Payroll Now<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Cost to Company (CTC) is the total cost that a company would incur on an employee in a year. This cost includes monetary and non-monetary amounts spent on an employee.<\/p>\n","protected":false},"author":151156469,"featured_media":4309,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3404,3476],"tags":[],"class_list":{"0":"post-4290","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-payroll","8":"category-payroll-glossary"},"_links":{"self":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/4290","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/users\/151156469"}],"replies":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/comments?post=4290"}],"version-history":[{"count":14,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/4290\/revisions"}],"predecessor-version":[{"id":8904,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/4290\/revisions\/8904"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media\/4309"}],"wp:attachment":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media?parent=4290"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/categories?post=4290"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/tags?post=4290"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}