Though it may be anecdotal, there are some HR people who cannot reconcile their own salary from a CTC to take home!

Why does this happen?

Simply because the CTC is a concept which can include many things, not just the Income tax! For example if in a bank you are entitled to a Rs. 20 Lakh housing loan at 2% interest, then about 8% of 20L – Rs. 1.6L is added to your CTC – as a concession!! So when the bank tells you that you are at a CTC of Rs. 12L REMEMBER it includes that Rs. 1.6L also!!

However, largely, the CTC comprises of Basic Pay, HRA, Some fixed allowances, bonus, performance bonus, LTA, Medical, Paid leave, training costs, telephone, contribution to provident fund, gratuity, etc. So if you hear that your CTC is Rs. 10L, expect to get about Rs. 50,000 every month, NOT Rs. 80,000!!

Thus even on a monthly basis your salary has a

1. Fixed salary and 2. Variable Salary 3. Retirement Benefits and 4. Deductions

The Fixed salary portion consists of the following:

a. Basic Salary: this is the basic salary that you get for doing your job. Normally kept small so that companies can contribute less to various other things like provident fund, etc.

b. House Rent Allowance: This portion makes sense simply because it is tax efficient to pay you HRA. This amount is expected to help you find a decent accommodation in the place where you reside….

c. Dearness allowance: A taxable amount, this is paid to compensate for the rising cost of living. In many companies it is variable -being linked to the Cost of Living Index.

d. Conveyance Allowance: paid for your commute from home to office – only Rs. 800 is tax free in this head.

2. The Variable part of your salary are the following:

Meal coupons: The government has said that if a company gives meal coupons for an employee the same will be tax free. So you will get coupons worth say Rs. 1200 a month – this obviously will not be in the CASH component when you get the salary cheque.

Telephone bills: If you have incurred telephone expenses, your telephone bills are reimbursed and it is tax free up till a certain amount.

Medical Reimbursement: If you incur medical expenses for your family members, the same is reimbursed to you, normally subject to a limit of Rs. 15,000 per annum

Bonus: Fixed but payable on a Quarterly basis or Variable will not be the same amount on a month to month basis. This also is an amount which will keep varying.

3. Retirement Benefits:

Provident Fund:
Almost all companies, and surely all the good companies contribute to a Provident fund. This contribution is also included in your CTC but does not appear in your cash on hand. About 12% of the basic salary is deducted as YOUR CONTRIBUTION and deposited with the Government or with the company’s own Provident fund Trust. This is available to you as a lumpsum (or as a pension) when you retire.

If you have worked for 5 years in a company and then you retire you get a ‘Gratuity’ covered by the Payment of Gratuity Act. This is included in your CTC but does not appear in the cash that you get.

4. Deductions

All the above amounts were a part of your income. However from the above the Income tax applicable to you, the profession tax, the deduction for insurance premium, contribution to a Mutual fund, or for some loan availed by you are all deducted.

Hence the difference between the CTC (gross pay) and the take home pay (net pay) that you get.

So next time your mother / father ask you….’arre you said your salary is Rs. 600,000 but why is your cheque not for Rs. 50,000, send them this link.

In fact send it to friends too if they are struggling with the reconciliation…..

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  1. In most of the companies the CTC includes the company’s contribution also to PF , Super annuation fund etc. One of my friends when he got the offer letter from a leading private sector bank, it included the soft loan component to buy a flat and car both. 🙂

  2. Hi Subra,

    I am reading your blog post for the last 5 years now, and this post caught my attention ,since I am an HR professional. What I have observed among the HR folks awareness in personal finance was not relating to their salary – most of the time, they do explain all these things to candidates, or to existing employees. Reconciliation of their CTC was easier, but what they do with their take home pay is not very clear for them. But all the other things you have talk about earlier, financial goals, planning, apply to us equally 🙂

    Thanks, I am waiting for your Part II in this.

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