CTC vs Gross vs Net Salary: Employees receive their salaries by organizations in lieu of services they render, and this amount comprises a number of different components, such as basic salary, allowance, perquisites, etc. The salary structure gives the details of the amount an employee is paid, and this breakup of different components constitute the entire compensation. Since any change in the salary structure can have a major impact employee, here are certain facts that we all should know.
CTC or Cost to Company
This actually amounts that any company spares on its employee directly or indirectly, and it comprises the whole package of an employee’s salary. The CTC consists of basic pay, different allowances, reimbursements on a monthly basis, along with gratuity, annual variable and yearly bonus. The CTC amount would never be an employee’s take-home salary, as it comprises several components. CTC= gross salary+ gratuity
This is in fact base income, and this is fixed according to an employee’s level which depends on which sector he/she is working with.
The amount consists of basic pay with all allowances including bonus, overtime, holiday pay, along with other allowances. This whole amount is termed a gross salary without tax deduction.
The take-home amount is known as Nett salary of a person and it comes after tax deduction.
Nett salary= Basic salary + HRA + allowances – Income tax – EPF – Professional Tax
Companies provide allowances to their employees in lieu of their services and it differs from company to company.
HRA: The House Rent Allowance is given in lieu of a house.
LTA: The Leave Travel Allowance is the amount given on domestic tour and it does not include food and lodging.
Vehicle allowance: Conveyance allowance is given to employees in lieu of expense incurred residence to office.
Dearness allowance: DA is actually a livelihood allowance given for price rise to employees and pensioners.
Among other allowances include special allowance, medical allowance and incentive.
Reimbursement : Companies offer this benefit to their employees for expenses on the medical, phone bill, newspaper bill, apart from salary when the bill is submitted. According to In Come Tax Act, this amount is tax-free to a certain limit only.