Gross Salary Vs Net Salary Vs Net take home salary

Gross Salary Vs Net Salary Vs Net Take home salaryGross CTC Vs Net CTC Vs Net take home salary

Have you got a new job offer in hand or going to join a new company? Are you getting excited with the new salary being offered by the new company? Better to under Gross CTC Vs Net CTC Vs Net take home salary so that you would not get disappointed later on. Many of the employees would be switching the jobs for better career and better salary. However if we can understand the differences, an employee can appropriately negotiate the salary in the new company instead of blaming the company later on after joining the company. In this article, I would try to provide some insights about Gross Salary Vs Net Salary and how Net take home should consider as key parameter.

CTC hike


Do we need to understand the differences?

If you received 40% salary hike in the new offer letter, don’t get excited and think that your net take home would get increased to a similar extent. You might be getting less amount and even worse than your current take home salary. An individual getting Rs 5 Lakhs CTC might be getting less take home salary than a person getting Rs 4.5 Lakhs CTC. Hence it is imporant for an employee to understand them before "accepting" the offer given by the other companies.


What is the Gross Salary or Gross CTC?

Any remuneration paid by employer to employer for the services rendered by an employee is called Salary. This salary includes Basic Salary, Allowances, Benefits, Perquisites etc. It does not mean that such Gross CTC would be directly payable to the employee. This amount is the Cost to the company (CTC).

Also Read: Where should you invest among EPF Vs NPS Vs PPF?

What are the Components of Salary?

Understanding the components of salary and various deductions would help you to know the difference between Gross Salary, Net Salary and Net Take Home salary.

Basic Salary: This is fixed amount of salary paid to the employee.

Allowances: There are various allowances paid to employees like House Rent Allowance (HRA), Leave Travel Allowance (LTA) etc. Every company has a different methods to pay for such allowances. Allowances like LTA is paid once in two years only. Some companies indicate these are optional allowance and you need not opt them. However necessary income tax needs to be paid if you consider them as part of your regular special allowance.

Reimbursable claims: There are several claims which company would make it part of your salary and ask you to claim. This includes telephone charges, medical allowance, fuel reimbursement, etc. E.g. Some companies would pay medical allowance only during the end of the financial year after submitting the medical proofs or during an employee resignation whichever is earlier. Some pay it every month after reducing appropriate income tax applicable on that. Such reduced amount would be paid at the end of the financial year after submission of medical bills. Similarly telephone charges are paid either monthly or at the end of the financial year upon submission of the bills.

Performance linked variable pay: Employers are increasing the component of performance linked variable pay these days. This is one of the components which every employee need to understand this carefully. This would differ from junior level, middle level and Senior level. It would be 10% to 30% of the CTC. This is divided into 3 parameters viz. Individual performance, company performance and division/unit performance. Company performance and unit performance component would be small to the extent of 1% to 3%. Major component would be individual performance variable pay. This is where employers would try to play tricks with employees. You should inquire what is the %age of amount one can expect. Many companies would pay in between 0% to 100% of this variable pay. Some companies are paying this as quarterly variable pay and some are making this as annual pay. You need to be part of the company payroll on that day to get such amount.

E.g. If you got an offer for the Rs 500,000 CTC, which has Rs 50,000 as variable pay. This may include Rs 40,000 as individual performance variable pay and you may get Rs 0 to Rs 40,000. You may be performing well, but the company would not pay 100% for every one. As an example, it may pay 100% only to one third of such employees.

Benefits: Some companies would provide special benefits to employees which are directly attributable to employees like Rent Free accommodation, Caufher driven car, company car scheme etc. Value of such benefit would be computed as per income tax laws and treated as part of Gross CTC.

Gross Salary = Basic Salary + Allowances + Variable pay + Benefits.

Net Salary = Basic Salary + Allowances + Variable pay

Simple to understand is Net Salary do not contain any benefits or perquisites as they are directly or indirectly not paid in cash.

What is Net Salary Vs Net Take home salary?

There are 2 types of deductions

1) Statutory deductions:

Provident fund: It is the amount reduced by the employer and deposited in your provident fund account every month. It is 12% of your basic salary to be contributed by employee and employer separately. Many employers would club their portion of 12% as part of your Gross CTC.

Medical insurance: Many of us do not realize the employer would make this part of our CTC only. Please check  your offer letter and this component is included. It is the amount spent by employer for providing medical insurance for you and your family as per company policy.

Professional tax / ESI: Any professional tax or ESI payable are deductible.

2) Income tax: This amount is computed based on income tax slab applicable on your taxable salary income (gross CTC minus statutory deductions). You need to consider 80C deduction or any other income tax exemptions before arriving at the income tax.

Net take home salary per month would be after reducing all these deductions. You also need to reduce variable pay in case this is paid either on a quarterly basis or on a yearly basis.

Also Read: Salary employees can save income tax on 80C and beyond, know how?

Well, I don’t understand all these, can I negotiate in simple terms?

In simple terms, Net Take Home Salary = Basic Salary + variable pay + Allowances + Benefits – statutory deductions – income tax.

I would give a simple tip to benefit from this. When you negotiate for a new offer, try negotiating at net take home level. E.g. if you are getting Rs 40,000 as net take home salary, tell your hike %age on this amount. If you want 50%, tell them you need Rs 60,000 as net take home salary per month. This is one of the best strategy to overcome all such computations and increase your monthly income.

Conclusion: To grow in your career you might be switching the jobs. However, understanding Gross CTC Vs Net CTC Vs Net Take home salary would help you to know the actual benefit you are getting from the new offer from the new company.

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Gross Salary Vs Net Salary Vs Net take home salary


  • Kashyap

    12500 CTC?
    I can’t Understood.
    Please help me to know ctc salary structure.

  • Hari

    If you can please let me know what would be my net take home if my entire component is fixed and it is 600000 INR per annum.

    Thanks in advance

  • Subbu

    Most companies fix the basic as 40% of the CTC and 12% as PF on Basic as employer and employee contribution, which means your take home pay will be as follows = CTC less 24% ( Employer and employee contribution of PF) and of course less taxes as well.

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