Understanding Salary Components: Gross, Net, and CTC
The three salary-related terms—Gross, Net, and CTC—are interconnected, but each holds significance in different scenarios. At the bottom level, the Net Salary is generally important, with little difference among all. However, at the middle or higher levels, negotiations often focus on Gross and CTC concepts, which can result in significant differences. Let me explain with examples:
Case I: Gross and Net Salary
An employee is negotiated at a Gross Wage of Rs. 15,000, from which PF-ESI, PT, etc., will be deducted. The employer will also contribute to PF-ESI and annually pay bonuses and leave encashment (for PL). Suppose Rs. 2,000 is deducted from the salary (towards PF-ESI, PT, etc.), then the Net Salary will be Rs. 13,000. Here, the Gross (15,000) and Net Salary (13,000) are clarified.
Case II: Understanding CTC
The employer also deposits towards PF-ESI, pays an annual bonus, provides leaves, etc. These amounts are not paid to the employee monthly but contribute to the employee's Cost to the Company (CTC). When we include such benefits in the Gross Salary, it becomes the CTC (Cost to Company). For example, the monthly amounts are:
PF-ESI = 3,200
Bonus = 1,250
Leave = 800
Insurance = 750
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Total = 5,000
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In this case, the CTC will be Rs. 15,000 (Gross) + 5,000 (employer other benefits/cost) = 20,000.
I hope the matter is clear now. Seniors can suggest more views.