by Pragati Agrawal MBA
If you are an employee, CTC is the value that your company is willing to spend on you during a financial year. Now, your CTC includes direct benefits like your basic salary, House Rent Allowance (HRA),
Leave Travel Allowance or LT, special allowance, performance bonus, etc. CTC also includes indirect benefits like subsidized meals, company car facility, meal coupons, etc. And CTC also includes retirement
benefit plans like Employee provident fund (EPF), gratuity, etc.
CTC = Direct Benefits + Indirect Benefits + Retirement Benefits
Let’s Understand This With An Example :
DIRECT BENEFITS :
Basic - 484 USD
HRA - 181.5 USD
LTA - 60.5 USD
Special - 242 USD
Allowance
Gross Salary - 968 USD
INDIRECT BENEFITS :
Meal coupons - 60.5 USD
Company transportation facility - 121 USD
Total Indirect Benefits - 181.5 USD
RETIRALS :
EPF (employee+employer contribution) - 133.1 USD
Gratuity - 48.4 USD
Total Retirals - 181.5 USD
Monthly CTC= Gross Salary + Indirect benefits + Retirals= 1331 USD
What Is Net Salary Or Take-Home Salary?
From the above example we are clear that the monthly CTC is different from the net salary. That is because components like indirect benefits and retiral benefits don’t hit your bank account. Further, your net
salary is not the entire amount that comes under the Direct Benefit part. Your ‘Net salary’ is calculated after deducting components like income tax from your Direct benefits.
Net Salary = Direct benefits - deductions like income tax, etc.
Let’s take the above example to understand the net salary calculation.
DIRECT BENEFITS :
Basic - 484 USD
HRA - 181.5 USD
LTA - 60.5 USD
Special - 242 USD
Allowance
Gross Salary - 968 USD
DEDUCTIONS :
Income tax - 72.6 USD
Professional tax - 12.1 USD
EPF - 48.4 USD
Total Deductions - 121 USD
Net/ Take-home salary = Gross salary – Deductions = 968 USD - 121 USD = 847 USD
Note that the above example is a generic representation of the difference between CTC and Net Take-home salary.
ANOTHER EXAMPLE:
Microsoft pays 54450 USD to the freshers from NIT or IIT!
So now you guys will take your calculator and check that 54450 USD/ 12 months = 4537.5 USD !
4537.5 USD per month is true according to the calculation but the in-hand salary one gets with 54450 USD salary with all the deductions like PF/TAX etc.
Shocked?
I am sorry but that’s the reality!
So here we go with the reality check, the total of 54450 USD per annum is divided into the following way.
Base salary = 14520 USD !
Yearly Bonus = 1452 USD.
Joining bonus is a one-time payment, which is not part of CTC.
Stocks - 26620 USD over 4 years. It is something we cannot include as part of CTC, stating that you will get stocks worth 26620 USD every year! So this would be around 6655 USD per year.
So the actual CTC is close to 21780 USD but not 54450 USD !
Not only Microsoft, but the majority of product-based software companies also use this tactic and boost their CTC to 4840 USD and 6050 USD !
So don’t think if a person from IIT/NIT getting a package of 4840 above USD is rich, in fact, you can never become rich if you are in a job!
Few real-life examples I had:
One of my friends is an IITian who works for Microsoft getting a salary of 1089 USD.
One of my other school friends is a Bcom graduate, now working in sales and earning around 968 USD per month.
one of my cousins who failed 12th class, owns a supermarket and now he is earning around 1210 USD per month!
So whenever you see something like a 4840 USD,6050 USD package in newspapers and media, don’t panic, don’t get nervous. Do some hard work, follow your passion, you can also achieve that salary!
Image source: Google !
Pragati Agrawal MBA
Business Analyst
AirCrews Aviation Pvt. Ltd.
www.AircrewsAviation.com
Pragati@Air-Aviator.com
https://linktr.ee/pragatiagrawal
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