Various terms like CTC, net, basic, gross salary has kept you confused for the longest time. The reimbursements, PF, tax, and deductions are also there to make the salary structure all the more complex.
So, in this blog, to make it all simpler for you, we have decided to decode the salary components for you.
CTC is the abbreviation for Cost to Company and it is the total amount spent by a company on an employee. It is basically the whole salary package of the employee. He may not get all of it as cash in hand, Some amount can be cut in the name of PF and medical insurance, etc.
CTC = Gross Salary + PF + Gratuity
Basic salary is that amount that is considered as the basic amount for an individual. It is a fixed part of the compensation.
This salary component depends on the designation of the employee and the industry type.
Gross salary is that amount of the salary that comes after adding the basic salary and allowances without subtracting the taxes and other deductions. The bonuses, holiday pay, and overtime pay are also included in gross salary.
Gross Salary = Basic Salary + HRA + Other Allowances
Net salary can also be called as the take-home salary. This amount is the amount that an employee gets after deductions like that of TDS and other deductions like PF or medical insurance as per the company policy and your agreement at the time of joining the company.
Net Salary = Basic Salary + HRA + Allowances – Income Tax – Employer’s Provident Fund – Professional Tax
Allowance is that amount that is received by the employees for meeting the requirements of the service. The allowances are being provided to the employee in addition to the basic salary. They differ from company to company. Here are some of the common allowances:
House Rent Allowance (HRA)
It is the allowance given to the employee for incurring expenses related to rent of their accommodation.
Leave Travel Allowance (LTA)
It is the amount which is given by the company to an employee to cover domestic travel related expenses. It doesn’t include food, accommodation that the employee or people travelling along with him incur.
This allowance is being given to the employees to commute from office to work.
It is an allowance which is paid to the employees to handle the effects of inflation. This is majorly for government employees, pensioners, and public sector employees. Other such allowances are medical allowance, special allowance and incentives,etc.
Employees are also reimbursed certain amounts like that of medical treatments, and bills related to office related trips, newspaper bills, or phone bills etc. This amount isn’t received as a part of the salary, the employee is expected to show the expense receipts for reimbursement. There is also a maximum amount limit for each expense that the company would be liable to pay.
Employee Provident Fund (EPF)
PF is an investment done by both the employer and employee every month, the sum of this will act as the amount that he will give you. The amount that goes into PF each month as a contribution depends on the basic salary amount as 12% of basic salary is contributed from both the sides.
These were the few major CTC components. Hopefully, now you will not have difficulty in understanding your salary structure.