Difference between basic salary, take home salary, gross salary & CTC

Knowledge Partner: Grant Thornton Bharat

All salaried individuals hear various terms as part of their compensation such as Basic Salary, Take home salary, Gross salary or Cost to Company (CTC). Do you have a complete understanding of these terms?
Most freshers are surprised when they see the amount credited to their bank account, as they expected a higher amount as per the total compensation promised to them. In fact, even employees with years of experience are occasionally confused with these terms.

This article will help to explain the difference between these terms and how to analyse your compensation using these terms.

Basic salary – Basic salary is the main component of your salary. Certain allowances, provident fund, gratuity and other social security contributions are usually calculated as a percentage of this basic salary. Basic salary is usually the lowest amount of the 4 terms discussed in this article.

Take home salary – Take home salary is the amount that will be credited to your bank account. This is usually your gross salary less deductions (such as income tax, employee contribution to provident fund, profession tax etc) less any benefits in kind.

Gross salary – Gross salary is the gross amount that you would see on your payslip. It is the amount of your salary excluding employer contributions to Provident Fund, National Pension Scheme, Superannuation Fund, gratuity etc. Gross salary is the gross payments that the company will calculate before considering deductions.

Cost to Company – Cost to Company or "CTC" refers to the employee's total package, i.e. the total amount that the employer will spend on the employee. CTC includes all components such as Basic salary, House rent allowance, special allowance, Leave Travel Allowance, Conveyance allowance, perquisites, or any other fixed components of your salary. Employer contributions to Provident Fund, National Pension Scheme and Superannuation Fund is also included as part of your CTC. Some companies include variable pay as part of the CTC. Your CTC is usually the highest amount out of the 4 terms discussed in this article.

It is important to read your employee handbook or compensation policy to ensure that you are able to differentiate between each of the above terms. In-depth knowledge of these terms will enable you to make your household budgets, investment decisions, tax saving schemes and planning your leisure activities.


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