Difference Between CTC and Inhand Salary

5 mins read
by Angel One
This article breaks down the concepts of CTC (Cost to Company) and in-hand salary. Here, we get to know how they differ and how to calculate your taxable income.

Job hunting can intimidate you, especially when faced with terms like CTC and in-hand salary. These terms can add a layer of confusion to the already unknown world of salary negotiations. Questions such as “What is the difference between these two terms?” and “What is CTC  in salary?” may arise. 

This article can help you understand the difference between CTC v/s in-hand salary.

What Is CTC in Salary?

CTC (Cost To Company), refers to the total cost incurred by an employer for hiring an employee. It includes all the expenses associated with employing an officer including the salary, allowances, perks and saving contributions. The CTC figure provides a comprehensive view of the employer’s investment in an employee.

Components of CTC

The components included in CTC can be classified into three categories:

1. Direct Benefits

Direct benefits denote the total monetary benefit that the employee receives annually. This includes basic salary and different allowances such as dearness allowance (DA), house rent allowance (HRA), medical allowance, leave travel allowance, vehicle allowance, etc. 

2. Indirect Benefits

The total amount paid by the employee on behalf of the employer such as subsidised meals, company leased accommodation, life insurance and medical insurance premiums, etc.

3. Saving Contributions

The saving schemes include the contribution amount of the employer towards saving schemes that an employee is entitled to. Some of these saving schemes are Gratuity, Employees’ Provident Fund (EPF), and superannuation benefits.

What Is the Gross Salary?

The salary that an employee receives before making any mandatory or voluntary deduction is called the gross salary. This amount includes the basic salary, bonus amount, and allowances and is the amount before deduction of tax. This is the amount that is generally stated on the employment contract.

Gross Salary = Basic Salary + Allowances (Before Tax Deductions)

What Is In-Hand Salary?

The in-hand salary, simply put, is the amount that an employee takes home. It is also known as the net salary or take-home pay. As CTC depicts the total cost to an employer, in-hand salary shows the actual amount that an employee can use at his disposal for personal expenses.

The in-hand salary can be calculated by deducting the liable tax amount from the gross salary.

In-Hand Salary = Gross Salary – Tax Deductions

CTC vs Inhand Salary

Elements CTC (Cost To Company) In-Hand Salary
Meaning Total amount invested by the employer for the services of an employee. The figure that is credited to the employee’s bank account.
Components Includes basic salary, allowances as well as saving contributions of the employer. Includes basic salary, deductions, as well as other allowances.
Transperancy Often stated higher to attract more candidates. This may include benefits that are not directly enjoyed by the employee. It provides a clearer picture of the employee’s earnings.
Relevance Generally discussed during job offers by the company and negotiated. The focus of the employee for budgeting and financial planning.

How To Calculate CTC From Basic Salary?

Let’s take an example and understand how to derive the CTC amount from the in-hand salary.

Components Amount (₹) Deductions Amount (₹)
Basic Salary 1,000 Provident Fund 150
HRA 250 Professional Tax 70
Special Allowance 150
Gross Earnings (A) 1,400 Total Deductions (B) 220
Net Pay (A-B) 1,180

Annual Figures

Net Pay = ₹1,180 * 12 = ₹14,160

Hence, the annual in-hand salary is ₹14,160.

To get the CTC figure, we add the expenses born by the employer on behalf of the employee. These expenses are subjective to the employer as well as the job contract.

Expenses Amount (₹)
Medical Insurance 650
Provident Fund (10% of basic salary) 190
Total Benefits 840

Thus, CTC = In-Hand Salary + Total Benefits 

CTC = 14,160 + 840 = ₹15,000

Total CTC = ₹15,000

Note: This is only to illustrate the calculation of CTC. The structure may be subjective to the company and its policies.

How To Calculate Your Taxable Income?

The following steps can be taken to calculate taxable income:

  1. Calculate the gross salary by adding allowances such as DA, HRA, travel allowance, and special allowances to your basic salary.
  2. Deduct the amount of professional tax, standard deduction, and the HRA exemptions from the gross salary.
  3. Add any commission/bonus, extra income, etc to the Step 2 amount.
  4. Subtract the applicable deductions under sections 80C, 80D, and Chapter VIA of the Income Tax Act.
  5. This is the taxable income. Apply the income tax rate from the income slab for the taxable income amount.

To arrive quickly at accurate taxable income, online tax calculators are available to assist you.

Final Words

Understanding the difference between CTC and In-Hand Salary can help you navigate the field of job searching because it helps you negotiate a better salary, budget efficiently, and understand your tax liability. Moreover, knowing your disposable income can help you make better investment decisions, such as the amount to invest, saving tax through investing, etc. Open your Demat account with Angel One and learn about the different types of investments best suited for your goals. Get started today!


What is CTC, and how does it differ from the in-hand salary?

CTC stands for Cost to Company, which is the total cost incurred by the employer for hiring an employee. In-hand salary, on the other hand, is the actual amount received by the employee after deductions.

What components are included in CTC?

CTC includes direct benefits (such as basic salary and allowances), indirect benefits (like subsidised meals and insurance premiums), and saving contributions (such as EPF and gratuity).

How is gross salary calculated?

Gross salary is calculated by adding the basic salary, bonus amount, and allowances before any tax deductions.

What exactly is in-hand salary?

In-hand salary, also known as net salary or take-home pay, is the amount that an employee receives in their bank account after tax deductions.

What is the relevance of in-hand salary for employees?

In-hand salary is crucial for budgeting and financial planning purposes, as it represents the actual amount available for personal expenses.