Personal Finance

CTC and what you take home

Anand Kalyanaraman | Updated on January 24, 2018 Published on February 07, 2015




What you actually make every payday may be less than what your company claims it is. Here’s the lowdown

What you see is not always what you get. If there’s one great example that drives home the truth of this statement, it is the CTC or cost-to-company, which is your total [targeted pay].

Many first-time employees, thrilled by the tidy sum that is their CTC, are disappointed on seeing their first paycheque. The latter can be as much as 30–40 per cent less.

Take heart though -- there are several reasons, some of which are justified (and some not), for this difference. And there are ways to reduce the gap.

Main reasons

The first point to understand is that the CTC is what the company says it will spend on you; the take-home is the amount actually paid to you. The distinction is significant, and not just semantics.

First, the CTC is a pre-tax amount. Your take home pay is after deduction of tax on salary. The taxman’s cut can be 10-30 per cent of your salary. That forms a big chunk. Next, some contributions made and expenses incurred by your company may not reflect in your payslip, but they do benefit you.

For instance, each month, your employer matches your compulsory contribution to the employee provident fund.

This amount -- 12 per cent of your Basic and Dearness Allowance -- forms part of your CTC. It does not get paid to you each month but helps build your retirement nest egg. If your employer provides group health insurance or life insurance to employees, a portion of the insurance premium may be included in your CTC.

Then, there are day-to-day benefits you get in kind, and are, therefore, not reflected in your monthly pay. Common among these are free or subsidised food and transportation facilities which could form part of the CTC. So could food vouchers or gift coupons.

Reimbursements that the company gives you on medical, phone and fuel expenses if you submit the bills also form a part of your CTC. Besides, the leave travel allowance, given as reimbursement against travel bills or at the end of the year, adds to the CTC, but will not come in every month. In the same vein, if your employer provides perquisites such as accommodation and vehicle for usage, that counts in your CTC.


The amount the company provides towards your gratuity payment could also be listed as part of your CTC. Now, you get the gratuity payment only if you continue with the employer for five years or more. Quit before that, and you get zilch. So, while it is shown as part of your annual package, it may not necessarily be paid to you. A similar component is the annual bonus. If your offer letter holds out the carrot of a bonus at the end of the year, that could bump up the CTC.

In most cases, the bonus is a variable pay component and the final payout may depend not just on your performance but also that of your company’s. So, you may not get the entire amount you were promised in your CTC even if you are a top performer.

Then, there are companies that really push the CTC envelope by showing training expenses, rent for office space occupied, and leave encashment as part of your benefits.

These are sharp practices by employers, but then again, we don’t live in an ideal world.

But don't lose heart just yet. There are some ways though, to lessen the gap between your CTC and your take-home pay.

Bridge the gap

Before signing on the dotted line, make a careful note of your package details. Negotiate with your prospective employer and try to optimise the package by including more direct, regular, in-cash components instead of perks in kind.

Do this in as tax-efficient a manner as possible. For instance, if you are paying rent, ask for a higher amount as House Rent Allowance to get tax breaks.

Medical allowance up to ₹15,000 a year is exempt from tax – get this included as part of the package.

Likewise, conveyance allowance is exempt from tax to the extent of ₹9,600 annually. Reimbursements for expenses incurred also don’t attract tax. The sums may seem small at first glance, but put together, could add up to tidy tax savings.

Finally, make sure you make the necessary tax-saving investments such as ₹150,000 under Section 80C and health insurance through the year.

This will reduce tax outgo and increase your take-home pay.

Published on February 07, 2015
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