Terms like CTC, basic salary, gross salary, allowance, reimbursements, tax deductions, provident fund, insurance, etc. often create confusion for employees. In this blog, we have attempted to delineate all the terms associated with the salary in order to make it simpler for you.

Read more to understand salary breakup and the various terms associated with it.

You can also calculate in-hand salary with the help of this Take-Home Salary Calculator.

Also Read: 5 Hacks to Get a Higher Salary Package at Any Company.


CTC or Cost to Company is the total amount that a company spends (directly or indirectly) on an employee. It refers to the total salary package of the employee. CTC is inclusive of monthly components such as basic pay, various allowances, reimbursements, etc. and annual components such as gratuity, annual variable pay, annual bonus, etc.

CTC is never equal to the amount of take-home salary of the employee. There are many components in the CTC that one does not receive as part of take-home salary.

CTC = Gross Salary + PF + Gratuity

Let us now discuss common salary components:

Recommended Read: Work-Life Balance vs Salary Offered- How to Choose Between the Two?

Basic salary

Basic salary is the base income of an individual. It is a fixed part of one's compensation package.

A basic salary depends on the employee’s designation and also the industry in which the employee works.

Gross salary

Gross salary is the amount calculated by adding up one's basic salary and allowances, before deduction of taxes and other deductions. It includes bonuses, over-time pay, holiday pay, and other differentials.

Gross Salary = Basic Salary + HRA + Other Allowances

Net salary or take-home salary

Net salary or take-home salary is obtained after deducting income tax at source (TDS) and other deductions as per the relevant company policy.

Net Salary = Basic Salary + HRA + Allowances - Income Tax - Employer's Provident Fund - Professional Tax


An allowance is an amount received by the employee for meeting service requirements. Allowances are provided in addition to the basic salary and vary from company to company. Some common types of allowances are discussed below:

  • HRA or House Rent Allowance: It is an amount paid out to employees by companies for expenses related to rented accommodation.
  • Leave Travel Allowance (LTA): LTA is the amount provided by the company to cover domestic travel expenses of an employee. It does not include the expenses for food, accommodation, etc. during the travel.
  • Conveyance Allowance: This allowance is provided to employees to meet travel expenses from residence to work.
  • Dearness Allowance: DA is a living allowance paid to employees to tackle the effects of inflation. It is applicable to government employees, public sector employees, and pensioners only.
  • Other such allowances are the special allowance, medical allowance, incentives, etc.


Occasionally, employees are entitled to several reimbursements like medical treatments, phone bills, newspaper bills, etc. The amount is not received in the salary, but on submission of the bills, reimbursement is given. Generally, there is an upper limit for every category of reimbursement.

Employer Provident fund/EPF or Provident Fund

Provident fund is an investment both by the employer and the employee each month, the lump sum amount of which acts as an employee's retirement benefits scheme.

Provident fund contribution is mandatorily either of the following:
Case 1: Basic salary < 15000 (per month)
12% of the basic salary

Case2: Basic salary > 15000 (per month)
In this case the company has an option to either contribute 12% of 15,000 (i.e. 1800) or 12% of Basic salary.

It is directly deposited in the employee’s PF account. You can check your balance here.

Hence, 12% of the basic salary gets contributed by the employee and another 12% by the employer. Usually, the contribution from the employer can only be seen in your offer letter and not in the payslip. Contribution from your salary is called EPF and it can be seen in the payslip. Contribution to the provident fund is mandatory for Indian companies.

Public provident fund or PPF

PPF is a voluntary contribution by the employee and is completely controlled by him/her. The employer has nothing to do with a PPF account.

This amount is not mentioned in CTC or pay slips, however, if an employee presents it as an investment for tax saving purpose, it will be shown on Form 16.

People open PPF account for two main reasons - one is for tax saving purpose and second for long-term investment. PPF provides 7.6% per annum (compounded annually) and more importantly, both the contribution and maturity amount is tax-free.

Do not confuse this with Employer's PF contribution.

Form 16

The company issues a Form 16 which contains the details about the salary earned by the employee and the amount of tax deducted.
The taxpayer is required to submit Form 16 to file the Income Tax returns every financial year. It acts as the proof of his/her income and tax paid to the government.


Gratuity is the part of the salary that is received by an employee from the employer for the services offered by the employee upon him or her leaving the job.

Though an employee can receive the gratuity amount only after 5 years, it will be deducted by the employer every year and hence it will get deducted from your CTC.

Life insurance and health insurance

Many companies provide health insurance and life insurance to their employees, the premium for which is borne by the employer and is included in the CTC. Hence it has to be deducted while calculating your take home salary.

Let us understand income tax and how it is related to salary income and salary components.

Income tax

The tax levied on one’s personal income is called income tax. Usually, an employee gets his or her salary after the tax deduction by the employer. This process is called as Tax Deduction at Source (TDS). The deducted tax amount is paid to the government by the company.

Professional tax

Professional tax is the tax charged by the state government in order to let an individual practice a certain profession. The maximum amount payable per year is INR 2,500. It depends on one’s monthly salary and also on the state in which one works. The professional tax levied varies from state to state in India.

Professional tax is not applicable in the following states and union territories:

Arunachal Pradesh, Andaman & Nicobar, Chandigarh, Dadra & Nagar Haveli, Daman & Diu, Delhi, Goa, Haryana, Himachal Pradesh, Jammu & Kashmir, Lakshadweep, Nagaland, Punjab, Rajasthan, Uttarakhand, and Uttar Pradesh.

Take a look at the professional tax slab in India (Statewise).

How to calculate your take-home salary?

We have provided some easy steps to help you calculate your take-home salary, also known as in-hand salary and net salary.

In order to Calculate take-home salary, subtract the Income Tax, Provident Fund (PF) and Professional Tax from the Gross Salary.

Step 1: Calculate gross salary

Gross Salary = CTC – (EPF + Gratuity)

Step 2: Calculate taxable income

Taxable Income = Income (Gross Salary + other income) – Deductions

In order to determine the part of your income that is taxable, subtract allowances (LTA, Conveyance Allowance, HRA), professional tax, medical bills, medical insurance, tax saving investments, if any and other deductions from your gross salary.

Calculating income:

To calculate income-tax, include income from all sources such as:

  • Salary (salary paid by your employer)
  • House property (rental income, or interest paid on home loan)
  • Capital gains (income from sale purchase of shares or house)
  • Income from any business/profession
  • Other sources (saving account interest income, fixed deposit interest income, interest income from bonds)


1. HRA
HRA received is not fully exempt from tax. HRA that you can claim is the lowest of the following:

  • The total amount received as the HRA from the employer in the financial year.
  • Actual rent paid in the year – 10% of the basic salary in the year.
  • 50% of the annual basic salary if staying in a metro city or 40% of the annual basic salary if staying in a non-metro city.

2. Standard deduction
In Budget 2019, a standard deduction of Rs 50,000 (annually) has been introduced. Before this, there was a transport allowance of maximum INR 19,200 (annual) and Medical allowance of maximum INR 15,000 (annual), which are no longer applicable.

3. LTA
Travel cost can be claimed for tax exemption under Section 10(5), twice in a block of four years. LTA covers only domestic travel, and the amount is provided on submission of actual bills.

Please note that some components of the salary such as medical reimbursements, telephone bills reimbursement, etc. are exempt from the tax deduction.

Deductions are generally divided into the following sections:

Section Nature Limit
80C Basic deductions from total income 1,50,000
80 TTA Interest from deposits Rs. 10,000 on interest, available to an individual and HUF, deduction allowed on interest earned from a savings account with a bank
80 G Donations to charity 50% of the donation made is allowed to be deducted from the taxable income. However, if the amount is more than 10% of the gross total income, the excess will be ignored.
80 E Educational loan deduction allowed on total EMI part, no limit
80 EE Home loan interest Allowed on interest paid on home loan up to maximum Rs 50,000 per financial year.
80 D Medical insurance premium For self and family- Rs 25,000, For self and family and parents- Rs. 55,000, For self and family and senior citizen parents- Rs. 80000

Step 3: Calculate income tax**

Once you have taxable income, you can easily calculate income-tax by referring to the income-tax slab and rates provided below:

Tax slab

The income tax rate is levied based on a slab system under which individuals pay taxes at different rates basis their income slab.

Income tax slabs are revised every year during the budget keeping in mind the individual taxpayers.

According to the budget announcement for the FY 2019-20, tax slab for male and female Indian resident individuals below 60 years of age is as follows:

Net Income Income Tax Health and Education Cess
Up to Rs. 5 Lac Nil Nil
Rs. 5,00,000 - Rs. 10,00,000 Rs. 12,500 + 20% on income above 5 lac 4% of income tax
Above Rs. 10,00,000 Rs. 1,12,500 + 30% on income above 10 lac 4% of income tax

*Surcharge @10% will be applied for taxable income between Rs. 50 lac to Rs. 1 crore and @15% for taxable income above Rs. 1 crore.

But with the new budget announced on February 2, 2020, taxpayers can now choose between the current and new tax regime.

Individual taxpayers have a choice between

  • The current tax regime with existing income tax deductions and exemptions.
  • The new income tax regime with lower tax rates and fewer exemptions.

As proposed in the Budget 2020-21, the new tax regime offers slashed income tax rates to lower the amount of tax paid, simultaneously eliminating certain deductions and exemptions.

As per the revised tax regime, tax slab for individuals below 60 years of age is as follows

Income Tax Slab Tax Rate
Upto Rs 2.5 lac Nil
Rs 2.5 lac to Rs 5 lac 5% (Rs 12,500 tax rebate per section 87A)
Rs 5 lac to Rs 7.5 lac 10 %
Rs 7.5 lac to Rs. 10 lac 15 %
Rs 10 lac to Rs 12.5 lac 20%
Rs 12.5 la to Rs 15 lac 25%
Rs 15 lac and above 30%
The amount of tax will be subject to 4% education and health cess

A taxpayer choosing the new tax regime will have to give up the following deductions and exemptions:

  1. HRA (House Rent Allowance)
  2. LTA (Leave Travel Allowance)
  3. Relocation allowance
  4. Professional Tax
  5. Housing loan interest (Section 24)
  6. Education allowance
  7. Helper allowance
  8. Special allowances [Section 10 (14)]
  9. Standard deductions
  10. Chapter VI-A deduction (Except section 80CCD(2) and 80JJA)
  11. Conveyance
  12. Daily expenses during the employment term

Calculate exact in-hand salary with the help of our free take-home salary calculator.

Step 4: Calculating in-hand/take home salary

Take Home Salary = Basic Salary + Actual HRA + Special Allowance - Income Tax - Employer’s PF Contribution(EPF)


Let's take an example to understand how to calculate take-home salary:

Meera's CTC is Rs. 16,00,000. Other salary components of her salary structure are metioned below:

Salary Components Amount (annual) Amount (monthly)
CTC 16,00,000 -
Basic 6,40,000 53,332
HRA 3,20,000 26,666
EPF 21,600 1,800
Sec 80C Investment 1,00,000 8,333
Leave Travel Allowance 20,000 1,666
Special Allowance 5,75,324 47,943
Gratuity 23,076 1,923
Professional Tax 2400 200

*This is up to Meera to decide how much she wants to invest and claim under section 80C. The maximum deduction possible is 1,50,000. EPF amount also comes under section 80C.

We have assumed that Meera pays INR 30,000 per month as her rent.

DA is assumed to be zero because Meera is a private sector employee.

Step 1: Calculating gross salary

Gross Salary = CTC – (EPF + Gratuity)
Gross salary= 16,00,000 – (21,600 + 23,076)

Gross Salary = INR 15,55,324

Step 2: Calculating taxable income

First, calculate the HRA deduction that you can claim:

HRA that you can claim = Minimum of (Actual HRA, Rent paid - 10% of basic, 50% of Basic for metro city)
= Minimum (3,20,000 , 3,60,000 - 10% of 6,40,000, 50% of 6,40,000)
= Minimum (3,20,000, 2,96,000, 3,20,000)
= 2,96,000

Taxable Income = Gross Salary – Section 80C deduction – Standard Deduction – HRA – Professional Tax

Taxable Income = 15,55,324 – 1,000,00 – 50,000 – 2,96,000 – 2,400

Taxable Income = 11,06,924

Step 3: Calculate income tax

Based on the slab rates announced in the FY 2019-20:

Income Tax = 112500 + 30% of (Taxable Income - 100000)
Income Tax = 112500 + 30% of 1,06,924
Income Tax = 1,87,347
Cess = 4% of Income Tax

Net Tax = 1,87,347 + 7494= 1,94,841

Step 4: Calculating in-hand/take home salary

Take Home Salary = Gross Salary – (Income Tax + Professional Tax)
Take Home Salary = 15,55,324 - (1,94,841 + 2,400)

Take Home Salary (Annual) = INR 13,58,540
Take Home Salary (Monthly) = INR 1,13,212

Some common queries:

1. When and how much gratuity do you get paid?

In India, the basic requirements for gratuity are set out under the Payment of Gratuity Act 1971.

Note: To fall under the Act and qualify for gratuity, an employee needs to have at least five full years of service with the current employer, except in the event that an employee passes away or is rendered disabled due to accident or illness, in which case gratuity must be paid.

Gratuity = [ (Basic monthly salary + D.A) x 15 days x No. of years of service ] / 26

Here, basic monthly salary is the last month's basic pay at the time of leaving.

2. How to see my PF Balance?

Follow the below-given steps for downloading UAN passbook.

  1. Click here for downloading PF passbook.

This facility is to view the Member Passbook for the members registered on the Unified Member Portal. Passbook will be available after 6 Hours of registration at Unified Member Portal.

  1. First time when you login on above website it will show Invalid login credential. Then try after 2 days. When you will login after 2days it will show passbook will be available after 4days. After 4 days when you will login download passbook copy.

· Your Username would be your UAN number (It is printed on your salary slip)
· Password (which is you have generated at the time of UAN activation)

3. What is the difference between Financial Year and Assessment Year?

Financial year (FY)

A financial year is a year as reckoned for taxing and accounting purposes. It commences from April 1 of a year and ends on March 31 of the following year. In the case of filing IT returns, financial year is the previous year. It is the year in which one has earned the income. Hence, if you are filing a return this year, that is 2018, the financial year will be 2017-18.

Assessment year (AY)

Assessment year, on the other hand, is the year in which you file your returns. It is the year in which the income that you have earned in the financial year will be evaluated. For example, if you have earned your income between 1 April 2016 and 31 March 2017, then 2017-2018 will be the Assessment Year. Hence, it is the year in which your tax liability will be calculated on the previous year’s income.

Income yearFinancial YearAssessment Year
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