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What is the Difference Between CTC, Take-Home, Net & Gross Salary?

Published on Dec 2, 2021Updated on Jul 17, 2023

What is the Difference Between CTC, Take-Home, Net & Gross Salary?

The annual or monthly amount that an employee receives from the employer against services rendered to the company is called a salary. The income salary calculator takes into account multiple factors such as the tax bracket the employee falls under, work experience, skill set, location, demand and supply, and the nature of the profession.

Salary comprises multiple components such as CTC, take-home, net salary, and gross salary. When using a take home calculator, understanding these components can help job seekers make well-informed decisions in choosing an employer.

Armed with a salary calculator, they have more bargaining power to negotiate their salaries.  Let us go through each of these in detail.

Cost to Company (CTC)

The total expense that a company incurs for hiring an employee’s services is known as cost-to-company or CTC. All the components of a salary such as incentives (if any), medical insurance, provident fund, pension fund, gratuity, travel allowance, house rent allowance (HRA), and basic salary are included within the CTC.

The CTC is the combination of all direct and indirect benefits and is not the same as take-home salary. Given below are the components of a CTC. Please note that organizations may not provide all these benefits, but rather a combination of these depending on the organization’s policy, employee’s role and designation, nature of the organization, etc.

  • Basic Salary – This is the non-variable component of your salary and is considered a part of your in-hand salary.
  • Allowances – The amount that an employee receives from an employer to meet the requirements of daily service is known as the allowance. This differs from company to company.
  • House Rent Allowance (HRA) – An employee who rents his or her place of residence is paid this amount.
  • Leave Travel Allowance – When an employee travels for service purposes, the company pays this amount to meet the domestic travel expenses. This amount does not include the accommodation and food expenses of the employee.
  • Dearness Allowance – This amount enables employees to tackle the volatility of inflation. It is a living allowance that is paid to pensioners, private sector employees, and government employees only.
  • Fuel or Vehicle Allowance – In a financial year, an employee is eligible for this amount as reimbursement for the use of vehicle and fuel for official purposes.
  • Phone or Internet Allowance – A company may pay for the internet and phone bills of an employee up to a predetermined limit.
  • Employee Provident Fund (EPF) – This is a percentage of the basic salary component which is deducted from the employee’s salary and placed into his/her provident fund account. The employer too contributes some amount. The amount contributed by the employer is calculated within the CTC for the employee. 
  • Gratuity – A company deducts this amount from an employee’s salary. If the employee leaves the company after more than 5 years of service,  the lump sum amount is awarded to the employee in his/her full and final settlement. Some organizations may allow employees to get this benefit if they leave after 3 years of service.
Must Read: What is Minimum Salary Required For a Personal Loan?

Gross Salary

The total salary that is offered to the employee before deductions is known as the gross salary. It is also known as the Savings Contributions.

Gross salary comprises all the components of CTC except gratuity, Superannuation Benefits, and the EPF. The following CTC components are a part of the gross salary –

  • Basic salary
  • Leave Travel Allowance
  • Educational Allowance
  • House Rent Allowance
  • Dearness Allowance
  • Conveyance Allowance
  • Travel, leave, and medical allowance
  • Overtime payment
  • Accommodation rent
  • Salary arrears
  • Performance-related monetary awards
  • Remuneration fee
  • City Compensatory Allowance (if any)

Office refreshments and reimbursements for food, travel, and other business trip expenses are not included in the Gross Salary.

Take Home or Net Salary

When we are trying to calculate in hand salary, we have to keep the following in mind - the definite salary that an employee gets in-hand after all deductions including income tax is known as the net salary or take-home salary. It is the salary that an employee gets after income taxes, professional taxes, gratuity, provident fund, EPF, etc. are deducted from the gross salary.

Depending on the tax slab applicable, if the income tax on the gross salary is zero, take home salary is the same as the net salary.  While using an eligibility calculator, an applicant should enter the monthly take-home salary amount to get accurate estimates of the maximum loan they can get.

Must Read: How Much Personal Loan Can I Get On My Salary?

Understanding the Differences Between the Salary Components

When using an annual income calculator, understanding the fundamental differences between in-hand salary and CTC can help job seekers negotiate salaries to their advantage.

CTC is the total of saving contributions, indirect benefits, and direct benefits. The net salary is direct benefits after all the deductions such as income tax, employee PF, etc.

When negotiating new salaries, informed job seekers try to increase the direct benefit component of their CTC. For example, they try to convert transportation, an indirect benefit, into conveyance allowance, a direct benefit.

Similarly, subsidised meals, which are indirect benefits, can be converted into food allowance, which is a direct benefit.

Conveyance allowance is non-taxable up to a certain limit. House rent allowance also offers tax rebates. Either of these options is a better alternative to, say, a pick-and-drop facility.

The tax liability of prerequisites and allowances vary across companies. Therefore, one should know the company policy of a new employer before accepting an offer. This will enable them to make better use of CTC to take home calculators.

We hope that this article has helped broaden your understanding. At SMFG India Credit, we offer a host of attractive financial products such as an instant personal loan online. If you are looking for a personal loan, visit our website or download the SMFG India Credit Instaloan app today.

Using our personal loan EMI calculator, you can determine the best tenure to select so that the resulting EMI is easy on your monthly budget.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

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