How-to

Salary explained

Last updated November 30, 2022 · Tushar Agarwal

CTC (Cost to company) is a term for the total salary package of an employee. It indicates the total amount of expenses an employer spends on an employee during one year. It includes all earnings and other components.

Earnings are the components that an employee earns for their work in the company. They include Basic, HRA, Conveyance, Medical, LTA, etc.

Statutory components are the components defined under certain enactments passed by government bodies like Employee Provident Fund Organisation (EPFO) and Employees’ State Insurance Corporation (ESIC). Employees and employers make contributions towards the employees’ long-term financial and social well-being.

Gross salary is the salary payable to you before deductions. In other words, gross salary is your monthly salary including the employee's PF contribution, ESI, professional tax, etc.

Net salary is the amount due after deducting recoveries such as insurance premium, provident fund, health insurance, etc. In other words, it is the actual cash you receive every month.

Salary components:

Earning components

 * **Basic**
 * **HRA**
 * **Special allowance** (variable)

Deduction components

 *   **Taxes**
 *  **Labour Welfare Fund**

Statutory component

*  **Employee Statutory component**
*  **Employer Statutory component**

CTC components comprise: Earning components + Employer Statutory component

Pay components comprise: Earning components - (Deduction components + Employee Statutory component)

Example

A company hires a person at a CTC of Rs. 3 lacs. Suppose the person earns Rs. 10,000 as basic pay. The company also pays them Rs. 13,500 as the sum of all their special allowances. The employee and the employer each contribute Rs. 1500 to the employee's provident fund. The employer deducts Rs. 2000 as the sum of all the deduction components.

Earning: Basic = 10,000 Allowances = 13,500

Gross salary: Basic + Allowances = 23,500

Employer Provident Fund (EPF) = 1,500

Monthly CTC: Gross salary + EPF = 25,000

Yearly CTC: Monthly CTC x 12 = 3,00,000 (also commonly known as package)

Deductions: PF = 1,500 Deductions = 2,000

Deduction components: PF + Deductions = 3500

Net Salary: Gross salary - Deduction components = 20,000 (also commonly known as in hand salary or Net income)

(Net salary + Deductions = monthly CTC)

Salary break-up is a document that contains detailed information on all of an employee's earning and deduction components. You can ask your employer for your salary break-up.

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