How to read your Payslip : Part 2

CTC, Basic Salary, Gross Salary, Net Salary - Do these terms confuse you? If yes, then this blog post may be helpful for you.

Here's an attempt to dissect all these terminologies in today's post!

Cost to Company

“If your salary was a PIE, then Cost to Company (CTC) is a FULL PIE (with ice cream). It is the total cost incurred by an employer to hire the services of an employee.

Cost to Company is a total of Direct benefits, Indirect benefits and Savings contribution. As seen below, the direct benefits would be Basic Salary + Allowances + Fixed Joining bonus, if any. Indirect benefits would include interest free loan to employees, subsidized meals or any other indirect benefits provided to an employee, the cost of which is borne by the employer. Savings contribution would include Provident fund, Gratuity etc.

GROSS SALARY

“Gross Salary is the combination of Basic Salary, House Rent Allowances, Leave Travel Allowances, Other Allowances”

If you remove one part of the full pie, you get Gross Salary. In other words, Gross Salary is Basic Salary + Allowances + Fixed joining bonus (if any)

Now, let's dive deep into some other terms used in the above image:

Basic salary is your BASE INCOME (calculated based on designation / industry).

House Rent Allowance (HRA) is paid to an employee for expenses related to rental accommodation (Tax exemption available under Section 10(13A) of Income Tax Act, 1961).

Leave Travel Assistance (LTA) covers an employees domestic travel expenses.

(Tax exemption available under Section 10(5) of Income Tax Act, 1961.

NET SALARY

“Net Salary is Gross Salary - Deductions (Taxes, PF)

In other words, Net Salary is your TAKE HOME salary. This is the amount that gets credited to your bank account each month end.

I hope this post helped you understand why the salary mentioned in your offer letter (as CTC) is not what you take home. It's not just about the taxes, there's a lot more involved.

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