Your annual CTC is 10 lakhs but why do you get only 70 thousand rupees in your hand every month? Understand this..

The last round of the job interview, talking to HR and then hearing that magical line: "Congratulations! Your annual CTC will be Rs 10 lakh." On hearing this, the calculator starts running in your mind. Divided 10 lakh by 12 and the result was - salary of about Rs 83,333 per month. Hearing this, you become happy in your heart and start making plans for the future. But when the salary of the first month is credited, the amount shown in the message is only Rs 70,000.

It is natural to be shocked after seeing this. Where did the remaining 13,000 rupees go? Did the company make a mistake? No. This is not a mistake, but the mathematics of salary, which every employed person should understand. Let us understand this whole game in simple language.

What does CTC mean?

First of all, keep in mind that CTC (Cost to Company) is not your in-hand salary. CTC means how much a company is spending to employ you for a year. This not only includes the money you receive, but also the money that is deposited in your name or given to the government on your behalf.

These are the main parts of CTC.

Basic Salary
This is the most important and fixed part of your salary. Usually, it ranges from 35% to 50% of CTC.

Allowances
This includes House Rent Allowance (HRA), Leave Travel Allowance (LTA), Special Allowance, etc.

Employer's Contribution
This is the part that does not come directly in your pocket. It includes the amount deposited by the company in your Provident Fund (PF) account and the estimated part of your gratuity.

Other benefits
This may also include things like a premium for medical insurance given by the company or meal coupons.

Complete details of the CTC of Rs 10 lakh

For example, let us prepare a break-up of CTC of Rs 10 lakh. This will make it easier for you to understand. Although these figures may change slightly according to the policies of different companies, they will give you a rough idea.

Annual CTC: ₹10,00,000

Component Annual Amount (₹) Notes
Basic Salary ₹4,00,000 40% of CTC (can be 35% to 50%)
House Rent Allowance (HRA) ₹2,00,000 50% of Basic Salary (helps in saving tax)
Special Allowance ₹3,32,760 Remaining Balance (This is fully taxable)
Employer's PF Contribution ₹48,000 12% of Basic Salary (This is credited to your PF account)
Gratuity ₹19,240 4.81% of Basic Salary (This is available on leaving the job after 5 years)
Total CTC ₹10,00,000

Now you can see that out of 10 lakhs, ₹67,240 (employer's PF + gratuity) is what you don't get in your monthly salary.

Deductions from gross salary: Where does the money go before it comes into hand?

Now let's talk about gross salary. The amount that is formed by adding dearness allowance, house rent allowance, special allowance, and all other types of allowances along with basic salary, and before any deduction is called gross salary.

Gross Annual Salary = Basic + HRA + Special Allowance
Gross Salary = ₹4,00,000 + ₹2,00,000 + ₹3,32,760 = ₹9,32,760
Your monthly gross salary is: ₹9,32,760 / 12 = ₹77,730

Now, some mandatory deductions are made from this gross salary.

Employee's PF contribution: 12% of your basic salary is deducted from your salary and deposited in your PF account. Apart from this, there are other deductions like professional tax, TDS, etc. After this, the salary that comes into your hands is called net salary or in-hand salary.

In this way, your in-hand salary is determined by deductions from your CTC. So, the next time you see your CTC, be excited, but always plan your budget based on your in-hand salary.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.