Take Home, Net Gross Salary vs CTC

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In our country, a large number of people join professional workforce annually. Depending on the job profile and skill levels, the salary of the employees differs from individual to individual.  However, not every salaried employee knows in detail about the different aspects that form their salary. Regardless of where you are working, in a big firm or a small one, you should know in detail about the different aspects of your salary i.e. take home salary, net salary, gross salary and cost to company (CTC).

But, in case you miss all these information, just be relaxed. In this page we are going to briefly explain about the different aspects that defines your salary and the differences between them. 

1.    Gross Salary- Gross Salary is the gratuity and the employee provident fund (EPF) subtracted from the cost to company (CTC). It is that sum amount which is paid before deduction of taxes or other deduction including bonus, over-time pay, holiday pay and other perk. 

Employee Provident Fund is described as employee benefit scheme authorized by ministry of labor which facilitate employee with medical assistance, child’s education, housing, education and insurance support. The Employee Provident Fund Organization (EPFO) has the power to mandate policies on pension, EPF and insurance schemes. At least 12% of the employee salary is needed to contribute by the employers towards his/her EPF. 

In addition to it, the employee can withdraw the entire amount collected in his/her PF account at the time of retirement. In circumstances like

  • Retirement due to permanent disability
  • Termination of services
  • Migration of taking employee abroad 

The employee can take out the accumulated amount from his/her PF account.

On the contrary, Gratuity is the part of your payout that is paid by your employers to appreciate your association with them. This gratuity is offered to the employee during the time of his/her retirement. An employee can leave his/her service on various circumstances such as retirement/job change or being sacked or by the way of voluntary retirement. After completion of 5 years, the employee receives gratuity under section 10(10) of Income Tax Act. 

2.    NET Salary or Take Home Salary- The salary of the employee which is actually given by the employer after taxation and other such deductions are carried out over it is known as the Net Salary or Take Home Salary. Net salary can be further elaborated as the amount of money that is calculated after tax deduction and other deductions like Public Provident Fund, Professional Tax Subtraction.

 Net Salary= Gross Salary- Income Tax- Public Provident Fund- Professional Tax 

Public Provident Fund (PPF) and Employee Provident Fund (EPF) are the required percentage of employee’s salary, generally the basic salary not less than 12% of. On contrary to this, gratuity is the percent of basic salary. It is basically 4.81% of employee basic salary. 

Take Home/Net Salary= Direct Benefit- Deduction

In this case, income tax is based on the gross salary of the employee and is deducted as a source by the employer. Moreover, the basic salary of an employee should be at least 50-60% of his/her gross salary. 

For example

Let’s assume Mr. Dhruv falls between the salary range of Rs 2,00,001-Rs 5,00,000 and comes under 10% tax-slab. 

Mr. Dhruv income is Rs 3,60,074.

10% of Mr. Dhruv income will be approximately Rs 36,007.4.

So, Mr. Dhruv income after taxation and other deduction would be Rs 3,24,066.6.

3.    The Cost to Company (CTC) - Cost to company commonly known as CTC is that amount which is decided by the company while requiting an employee. The cost to company includes a numerous other elements and is accumulative of Provident Fund (PF), and the allowances such as House Rent Allowance (HRA) and medical insurance are added to the basic salary. Basically, the total cost to company is the combination of all these elements. In simple words, CTC can be defined as a company’s spending on requiting and sustaining a service of an employee. 

CTC is evaluated as variable pay as it elements based on different factors and thus the take home salary and the net salary of an employees’ varies when the CTC varies from employee to employee. 

For Example-

Let’s assume MR. Ashit has been requited by the company and at a CTC of Rs 4,00,000. We have illustrated his income breakdown below. 

Basic Salary- Rs2,20,000

HRA-Rs 88,000


Medical Expenses- Rs15,000

EPF contribution- Rs21,600

Gratuity- Rs18,326

Special Allowance- Rs17,874 

Elements of Cost to Company

CTC is generally the sum total of Direct benefit i.e. the sum paid to the employee on annual basis, indirect benefits i.e. the amount the employers pays on behalf of employee and savings contributions i.e. the saving schemes the employee is entitled too.

Cost to Company = Direct benefit+ Indirect benefit + savings contributions

As mentioned above we have briefly described the components of cost to company in tabular form.

Direct Benefit

Indirect Benefit

Savings Contributions

Basic Salary

Interest Free Loans

Super Annuation Benefit

Conveyance Allowance

Subsidized meals

Employer Provident Fund

Medical Allowance

Food Coupons


Dearness Allowance

Company leased Accommodation


House rent Allowance

Income Tax Saving


Vehicle Allowance

Life Insurance and Medical premium paid by the employers


Leave Travel Allowance

Office Space Rent


Phone Allowance



Bonus or Incentives



Special Allowance



City Compensatory Allowance




For your convenience we have further discussed every single components of CTC breakdown:-

Basic Salary- The basic salary differs from CTC, the basic salary of the employee remains constant and does not vary. The total amount of your basic salary is the part of your take home salary.  

Allowances- Allowances are included in your salary structure, it is basically provided to the employee that helps them to take care of all the basic needs. These includes:-

House Rent Allowance (HRA) – House rent allowance is a part of the cost to company an employer pays to its employee. The employee can avail tax benefit with HRA if employees pay for rent annually and come up to 10% of take home salary.

Leave Travel Allowance (LTA)-  Leave travel allowance is yet another tax benefit component of CTC that is provided by the employers to the employees to cover the expenses of travel anywhere within the country. Besides this, the employee should keep in mind that the LTA only covers the travel allowance and other expenses like drinks, food, etc.

Dearness Allowance- Year after year inflation is rising and to tackle this issue dearness allowances are provided to the employee. Dearness allowance is basically an adjustment of cost of living given to reduce the inflation effect on the economy.

Other such allowances which are the part of the cost to company are vehicle, medical, incentives, mobile phone, and special allowance.

How can Make Most of Your CTC

The numerous aspects of salary are not that complicated as it looks. To make the most out of your CTC it is important to understand the basic difference of CTC and take home salary.

When you get a new job, you should try to increase the direct benefit part of the CTC while negotiating with the employer. For example, if a company is offering an indirect benefit as transportation allowance, the employee should try to avail it as negotiate to convert the other indirect benefit into direct benefits. Although Employee’s State Insurance (ESI) is offered by many organizations for employee health not every hospital offers the facility to avail it. Rather than taking ESI, medical reimbursement benefits the employees more. Instead of medical reimbursement for the employee alone, one can also ask for family reimbursement this will minimize the expenditure of the employee.

The employee can also avail tax benefit by house rent allowance and up to certain limit, conveyance allowances is also tax-free. So, make sure you ask your organization to include this in your CTC package. Prior accepting the offer from any new organization it is important to go through the company’s policies. The tax liability of allowances and gratuities vary from company to company.

With the help of proper tax planning take home salary can be increased. All you need to do is to invest in tax saving instruments under section 80C like Equity Linked Saving Scheme (ELSS), PPF, etc. However, this does not increase your CTC but the take home salary increases.