Difference Between Net Salary, Gross Salary and CTC
Getting a high package is a very important thing for us professionals. An equally important thing is to understand what our package actually means, what we are actually going to get in hand, what benefits are included in our package, what are the various deductions all about? Let us understand the various types of salary:
1. Gross Salary:
It is the total amount of money the company is going to spend for you. It includes all the allowances, perquisites, etc. It is the salary before any deductions. While net salary is derived from gross salary, after reducing tax deducted at source, EPF, etc. Gross salary is generally declared on an annual basis. It is basically the salary agreed between you and your employing committee. All the actual expenses being incurred by the company relating to your employment constitute your Gross Salary. Gross salary is basic + HRA + Transport + other allowances.
2. Net Salary:
Net salary is the salary that you get after statutory and other deductions. It is actually the Take Home Pay. It is called the Take Home Pay because it is actually the amount of paycheck you get to deposit in your account. Tax Deducted at Source (TDS), other standard deductions are the deductions reduced from gross salary to arrive at Net Salary. Gross salary minus PF contribution, ESIC contribution, Professional Tax, etc. gives you net salary.
CTC (Cost to Company):
This is a term used to describe how much a package is in countries like India and S. Africa. It means the total salary package and benefits received by employee in a year including free meals, cabs, interest free loans, etc. It is very important for you to understand the breakup of your CTC so that you can actually understand how much you are going to get in hand. Generally, 70 – 75 % CTC is your take home salary that you get in hand. CTC in India includes – Direct Benefits, Indirect Benefits & Savings Contributions. Direct Benefits are Basic Salary, Dearness Allowance, House Rent Allowance, Telephone/ Vehicle Allowances, Incentives, Bonus, etc. Indirect Benefits are Rent free Accommodation, Snacks & lunch coupons, Interest free loans, medical insurance by employer, etc. Saving Contributions are Employer Provident Fund, Gratuity, etc. Also, it is very important to note that, when you receive an increment, you must first go through the details of the increment carefully. You should analyze which components of your CTC have been increased & how are they affecting your take home salary. Thus, it is essential to understand the difference between various types of salary & how they affect our cash flow. Recommended Articles
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