Can Employees Take Home Their Full CTC as Salary from the First Month? Let's Discuss!

Compensation Package Details

If an employee's monthly CTC is Rs. 20,000, the compensation package offered is as follows:

Sr. No Head Amount (Monthly)
1 Basic Salary 10,000
2 Housing Rent Allowance - 40% of Basic 4,000
3 Transportation Allowance 1,500
4 Medical Allowance 200
5 Special Allowance 2,520
Gross Salary 19,220
6 P.F (12% on Maximum 6,500) - Employer's Cont 780
CTC (Cost To Company) 20,000

In this scenario, if the employee is willing to contribute to PF, 12% of Rs. 10,000 will be deducted from the employee's part, and they will receive Rs. 18,020 as take-home pay. Employees whose basic + DA exceeds 6,500 can fill a declaration form at the time of joining to avoid deductions.

Q1: Is the employee eligible to receive Rs. 20,000 as take-home pay from the very first month's salary or not?

Thank you.

Mandatory EPF Contribution for New Employees

If the new employee had a PF account in the earlier company, EPF contribution is mandatory here. Otherwise, you can have the employee fill out a declaration form to request an exemption.

Even after filling out that form, Rs. 200 will be deducted from the salary towards PT, which may change if working outside of Maharashtra State.

Also, the Gross will be the CTC and not otherwise.

Where is the work location? Irrespective of the nativity of the person, if the work location is in Maharashtra, then PT shall be deducted as per the Maharashtra Act. If he/she is working in Rajasthan, then PT shall be deducted as per the Rajasthan PT Act.

Understanding Cost to Company (CTC) and Provident Fund (PF) Calculations

Cost to Company (CTC) refers to the budget or expenditure allocated for employees. It is a crucial factor for calculation purposes. However, it is important to note that when considering your salary, it is necessary to factor in your gross salary without reference to CTC. Employees typically contribute only 12% on Rs. 6,500/-, while the company's contribution is 13.61% if all conditions are met.

It seems that there may be some confusion between CTC and Provident Fund (PF) calculations. Many companies display both the employee's contribution and the employer's share to showcase a higher salary amount for the employee, with both sums being deducted from the salary towards PF. I have encountered a situation where a contractor included both PF amounts in the salary slip to meet minimum wage requirements, but then the company deducted its share from the salary. Naturally, the deduction of the employee's share is standard practice. The PF officers handled the contractor appropriately in this case.

It is advisable not to solely rely on CTC figures. Readers, do you find any authenticity in this anonymous message?

CTC and Take Home Pay Explained

CTC:
As others pointed out, CTC is the sum total of what is payable to an employee on a month-to-month basis as salary (i.e., called cash cost) plus 'non-cash costs' such as:
i) Employer's contribution to employees' EPF accounts
ii) Gratuity 'accrued but not due' as of that month
iii) Leave salary, etc., which are not payable monthly as a part of salary, but the company has to incur at some point in the future.

Take Home:
This is the net amount of salary (cash costs) 'accrued and due' comprised of Basic, DA, HRA, Transport Allowance, Medical Allowance, Special Allowance minus Professional Tax, Income Tax (TDS) if applicable, EPF-Employees' monthly subscription @ 12% on Basic + DA, which is the 'Net amount/Take Home pay'.

So, CTC and Take Home pay are two different amounts, and hence, one cannot take home Rs. 20,000/- which is not the 'Net amount'.

Thank you.