I HAVE never understood my payslip till date,” says Avni Rustagi, a native of Punjab. Avni, 25, moved to Bangalore four years back in the hope of turning her dream into reality. In that order, she took up work as a designer with an Information Technology firm.

Avni pays Rs 10,000 as rent for a spacious apartment, but ask her about how she manages her other expenses and she throws her hands up in the air. “Numbers scare me,” she admits. “I don’t know a thing about finances.”

She says, “For instance, I don’t even understand my pay structure or CTC as it is called, what I get in hand or why I get that much.”

Wealth realised that Avni’s dilemma is a common problem with most working people. The transformation from CTC to take home leaves mostly everyone confused. Let’s decode and understand what happens when CTC becomes take home.

What is CTC?
CTC is nothing but the cost that the company incurs to employ you and keep you employed. It includes your pay and anything else that the company may incur to keep you in employment. Here is Avni’s CTC or Cost to Company.

Particulars	Rs (per annum)
Basic	480,000
Dearness Allowance	48,000
Entertainment Allowance	12,000
House Rent Allowance	96,000
Conveyance Allowance	12,000
Overtime Allowance	12,000
Medical reimbursement	15,000
Gross salary	675,000
Company’s contribution to provident fund	57,600
Annual CTC	732,600
Monthly CTC	61050

Avni’s salary package is quite transparent. However, each company has its own method of calculating CTC. Companies may offer an attractive CTC pay structure but the take home may be substantially lower. Here are some components that are commonly used in the CTC:

1. IT companies often add training costs in the CTC. These costs are incurred by the company for training the employees. So, naturally these do not come in the form of take home.
2. Banks include interest subsidies in CTC. That is, if you are a bank employee, you are entitled to a discounted rate on loans.
3. Performance bonuses are also included in the CTC. These are variable components and you will be paid out a percentage of the bonus depending on your performance.
4. Companies may include the cost of group medical or life insurance. Some companies may add food subsidies, that is, you may be getting a subsidy on your lunch in the office canteen.
5. Some companies include gratuity in the CTC. Gratuity is a sort of bonus that is paid out when you resign or retire from your company. The catch: You are entitled to gratuity only after completing 5 years in the company.

Read: Section 80C tax saving instruments