At the outset you can be thrilled that your cost to company in your appointment letter is a very decent sum. But, after a month when you receive your first salary, you are a little disappointed as the sum credit into your account or the sum received through cheque is not a decent one as expected by you.

What is Cost to Company?

Cost to Company as the name suggests is the amount that the company would have to bear in total for employing you, apart from some extra ordinary items like bonuses which are declared as goodwill. The CTC includes every other bit of calculation including your provident fund amount. So, when you are negotiating make sure that you understand that your net takehome salary could be lower by 10-20 per cent depending on your tax liability, contribution to PF etc.

What are the various deductions that you would witness from your gross salary or CTC?

Let us best explain this with an example. Let's say take the case of Ajay.

Basic Salary - Rs 300,000

House Rent Allowance - Rs 60,000

Medical Reimbursement Rs 15000

Conveyance Allowance Rs - 8000

Total Gross Salary Amount Per year - Rs 3,83,000 (Gross Salary per Month Rs 31,917)

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Deductions

Tax amount on Basic and HRA - Rs 11,000

EPF (12% of Basic salary) Rs 36,000

Medical Insurance - Rs 4000

Profession Tax - Rs 3600

Net Salary = Rs 3,39,400 (Net salary per month Rs 28,283)

As you can see from the example there is a significant difference between the net amount received and the CTC paid. Therefore, you need to factor in various deductions that would be made from your gross salary before taking into account a job offer. In some cases you can opt for no PF in which case you lose tax benefits that you would get under Sec 80C in case of PF.

However, you cannot avoid taxes and other things like group medical insurance. It's best to carefully negotiate your salary and understand the various deductions. Some individuals opt for things like coupon meals from the company which help to lower taxes and increase the net take home pay. In terms of other deductions there is very limited scope for negotiations.

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