When an employer hires you for a job role, he/she provides you with an appointment letter/offer letter where details about your CTC are mentioned. CTC means Cost to Company. It is basically the amount that the company will provide to recruit an employee. CTC consists of different components, including your in-hand salary. It is important to understand your in-hand salary from your current CTC. If you don’t know what your in-hand salary is, here’s how you can calculate it.
What is In-Hand Salary?
Also known as net salary or take-home salary, in-hand salary is the amount that the employer gives an employee after deducting taxes and other expenses from their gross salary. In-hand salary is basically the amount an employee uses for their personal expenses. Depending on your CTC, you can calculate your in-hand salary.
Calculating In-Hand Salary
Everyone’s in-hand salaries are different. It is basically calculated from the gross salary that you get in your CTC. Let’s understand this calculation with an example. For CTC of 5 LPA in hand salary will be INR 3,70,000- INR 4,00,000 per annum. It is an estimate depending on your individual tax slab and the company’s tax deductions.
Here’s a breakdown of your in-hand salary:
- Usually, 10-15% of CTC is considered as Income Tax, provided your salary is taxable. In that case, the Income Tax will be INR 50,000- INR 75,000
- Provident Fund- 12% of your basic salary is your provident fund. If you consider your basic salary as INR 2,00,000, the amount for your provident fund will be INR 24,000.
- There can be other minor deductions like professional tax and more. The amount after such deductions would be INR 5,000- INR 10,000.
So, if you subtract the total deductions from your gross salary, your in-hand salary will be INR 3,70,000- INR 4,00,000 per annum.
Now, you might want to know your monthly in-hand salary. The formula for which would be your annual in-hand salary / 12. Which means,
INR 3,70,000- INR 4,00,000 per annum/12 = INR 30,833- INR 33,333.
Components of CTC
More or less CTC structure for most companies are same. However, there are some exceptions in the structure, depending on the company’s policies. CTC comprises some essential components
Basic Pay
The core component of CTC. Typically, 40%-50% of the total CTC is accounted for basic pay. It is the fixed component of CTC.
Grade Pay
It is mainly seen in the government sector. This payment is based on the seniority of the employees.
Allowance
Allowances are a part of the CTC that employees get when they carry out certain expenses of the company. Allowances are paid to employees in one of three ways: partially, fully or non-taxable. Some allowances are provided on the basis of the employee’s designation, while others are offered anyway.
Conveyance Allowance
Many companies have a policy to offer conveyance allowances to employees. When an employee pays the travel expenses from home to the workplace, the company can add the amount to the employee’s allowance tab.
Medical Allowance
Another important part of the CTC is medical allowance. This allowance is eligible for tax exemption if medical bills are submitted at timelines that the employer provides. Usually, the exemption from this allowance is claimed for medical expenses incurred by the employees, their better halves, children and dependent family members.
HRA
The full form of HRA is House Rent Allowance. It is included as a part of the house rent expenditure that the employee will spend for living. If the company has offices spread across different parts of the city, the HRA will vary, depending on the living cost in the particular area.
Conclusion
Remember, your CTC is not your in-hand salary. Rather, it is a part of it that you get after a couple of deductions, allowances and benefits. If you have trouble calculating your in-hand salary from your current CTC, you can use a calculator. The formula is to subtract the total deductions from your gross salary.
