CTC, Gross Salary & Net Salary- Meaning & Difference Between These Salary Components

byDilip PrasadLast Updated: November 13, 2023
Defining and Distinguishing the Salary Components: Take-home Salary, Net Salary, Gross Salary, and CTC

Whether you are a newbie to the corporate world or have been here for years, your confusion about the salary breakup remains still! Even after years of experience, many employees would still be unaware of what to say when they are asked about their annual CTC. The reason for this long-standing confusion lies in the extensive breakup of salary with terms like take-home salary, gross salary, or net salary. This unawareness often leads to confusion and frustration in the minds of employees and may even mislead employees to settle for less pay.

To put an end to this confusion, let us begin with understanding the term “salary”.  Salary is basically the amount of money that you earn from a job on a daily, weekly, or monthly basis. This total amount of money can be broken down into sub-components like CTC (Cost to Company), gross salary, net salary, and take-home salary. 

In this article, we are going to discuss these salary components in detail to know more about the difference between each one of them and clarify the doubts about annual gross salary vs CTC. 

What is Cost to Company (CTC)?

CTCs are generally confused with gross salary giving rise to the whole debate of gross salary vs CTC. The Cost to Company or CTC is the complete salary package of an employee. It is an estimate of the overall amount that the employer will set aside for retaining an employee for the whole financial year. 

CTC includes many direct and indirect benefits that are given to the employee till the time he serves the organization. CTC is the sum total of many components as listed below-

  • Basic Salary- Basic Salary is the in-hand salary that an employee receives at regular intervals, which remains constant. 
  • Allowances- Allowances are the extra benefits added to an employee’s salary that covers their daily expenses like leave, travel, stays, etc. The chief allowance types have been discussed here:
  • Fuel Allowance- This is the sum total of vehicle expenses like the cost of fuel used by an employee for coming to the office.
  • Dearness Allowance (DA)- This is the cost of living of an employee, which changes with the increasing rate of inflation.
  • Phone Allowance- This covers the phone bills of an employee up to a certain amount every year. 
  • House Rent Allowance- This is given to employees who live in rented accommodation. Such employees can also claim tax benefits on the total rent allowance for the year.
  • Leave Travel Allowance- This is given to employees who travel from one place to another for service purposes. These domestic travel expenses do not include food expenses and accommodation.

Note that this CTC breakup might not be the same for every organization as it tends to change with respect to specific company policies.

What is Gross Salary?

The gross salary refers to the total salary of an employee, including bonus, holiday pays, and other overtime income before any deductions. Here are the components from CTC that are covered in a gross salary:

  • Basic Salary
  • Educational Allowance 
  • Conveyance Allowance 
  • Leave Travel Allowance
  • House Rent Allowance

Gross Salary also includes the following pays, which are not mentioned in CTC:

  • Performance-related monetary incentives 
  • Remuneration fee
  • Salary arrears 
  • Accommodation rent
  • Overtime payment
  • Travel, medical, and leave allowance

Gross Salary does not include the following aspects: 

  • Office refreshments 
  • Travel, food, and other expenses’ reimbursement on service trips
  • Savings Contribution (Gratuity and Employee Provident Fund)

More About Savings Contribution

  • Gratuity- Gratuity is the employer’s contribution towards the salary of an employee, reflecting the gratitude of an employer for the service provided by the employee. This amount is only paid to the employee on retrenchment or retirement or in migration cases after completion of 5 years with the organization. It is mandatory that the employee completes at least five years in an organization to get gratuity and claim tax benefits as per the Income Tax Act of 1961.
  • Employee Provident Fund (EPF)- EPF is the sum amount paid as per the employee benefits program of the Ministry of Labour. An employer contributes around 12% of the monthly salary of an employee every month. This amount can be withdrawn by the employee in cases like retirement, early retirement, migration, or resignation/termination.

Both the aforementioned savings’ contributions are deducted to arrive at the actual gross salary. Hence, we can say that –

Gross Salary = Cost to Company – (Provident Fund Contribution + Gratuity)

What is Net or Take-home Salary?

The net salary or take-home salary is the definite pay that an employee receives after TDS deductions are made. This is the final salary that the employee receives after all deductions like gratuity, EPF, etc., and income tax payments. 

The calculation of net salary depends on the calculation of income tax based on slab rates. If the income tax slab on your salary range amounts to zero, then your net salary will have no deductions, and vice versa. The formula for ascertaining net salary via net salary calculator is as follows:

Net Salary = Gross Salary – Income Tax

A Breakup of CTC, Gross Salary, and Net Salary- An Example

Now that you are aware of all the integral components of a salary, it is easier to assess any breakup of salary to arrive at the gross and net salary. Refer to the below-mentioned salary breakup of an employee named “Mr. X” to understand every aspect of gross salary vs net salary.

Salary ComponentAmount (Annual, in INR)
Basic Salary5,00,000
Travel Allowance50,000
House Rent Allowance45,000
Medical Allowance45,000
Leave and Travel Allowance60,000
Provident Fund Contribution84,000

Mr. X’s CTC (Cost to Company) represents the sum of all direct benefits, totaling INR 7,00,000. By deducting the gratuity and PF (Provident Fund) contributions, we arrive at the gross salary amount.

Using the gross salary formula:

Gross Salary = Cost to Company – (Provident Fund Contribution + Gratuity)

Gross Salary = INR 7,00,000 – (INR 84,000 + INR 29,629) = INR 5,86,371

Next, subtract the total income tax from this value, calculated at 5% for the income range of INR 2.5 lakh to 5 lakhs and 10% for the range of INR 5 lakh to 7.5 lakhs.

Using the net salary formula:

Net Salary = Gross Salary – Income Tax

Net Salary = INR 5,86,371 – INR 33,637 = INR 5,52,734

Difference Between CTC, Gross Salary and Net Salary

AspectCTC (Cost to Company)Gross SalaryNet Salary
DefinitionThe total cost incurred by the company for an employee including salary, benefits, allowances, contributions, and taxesThe total salary before any deductions (excluding taxes and deductions)The actual salary received after deductions (after deducting taxes, deductions, and other charges)
ComponentsBasic salary, allowances, bonuses, incentives, benefits, contributions, and taxesBasic salary, allowances, bonuses, incentives, benefits, contributions, and taxesBasic salary, allowances, bonuses, incentives, benefits, contributions, and taxes
TaxationSubject to taxation on various components within specified slabsSubject to taxation on various components within specified slabsSubject to taxation on the net income within specified slabs
DeductionsMay include provident fund, health insurance, income tax, professional tax, etc.May include provident fund, health insurance, income tax, professional tax, etc.Income tax, professional tax, employee provident fund, and other deductions based on the employee’s circumstances
Take-home SalaryN/AN/AThe actual salary credited to the employee’s bank account


Thus we can conclude that understanding the difference between take-home salary, CTC, and gross salary is a must to comprehend the various components of a salary. It is also important to note that all the components in CTC and gross salary might not be the same in every organization. But having standard knowledge is essential for every individual to gain clarity on how their salary is structured, the deductions applied, and the actual amount they receive. This awareness is crucial for financial planning and budgeting, as well as evaluating job offers or negotiating salaries effectively.

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