CTC vs take-home pay: New tax regime gives better visibility
Sanjay, a marketing professional, is thrilled to receive a job offer from his dream company. He has been offered the desired designation and a 30% salary hike. He quickly calls his parents to share this exciting news and inform them that he will accept the offer. His father, a chartered accountant, insists that Sanjay carefully vet the cost-to-company (CTC).
“Is the 30% hike on your in-hand salary?" the father asked.
“It’s on the CTC. Increase in take-home can’t be too off-the-mark," Sanjay replied.
“Well, it depends on how the CTC is structured. How many components does it have?"
“About ten. Five of these are new if I compare them to my current CTC. Now that you mention, variable pay also looks much bigger. This is quite confusing; how should I calculate my in-hand pay?" Sanjay asked.
“Mail me the offer letter as well as your current salary annexure. I’ll calculate and explain," his father said.
“Well, your in-hand increase is 20%. The House Rent Allowance (HRA) is lower in the new offer and Leave Travel Allowance (LTA) has been added. Like you pointed out, variable pay is almost 40% of your fixed pay as opposed to 15% in your current job. Some flexi benefits have been added, but these can only be claimed on actual bills. Also, did you ask the company if they will deduct their own EPF contribution from your fixed pay as that will further reduce the in-hand," he explained.
“Wait, that’s a lot of jargon," laughed Sanjay.
“I would suggest that you ask the company to offer you a simpler CTC that will give you more visibility on your take-home pay. In fact, since you have started filing your tax return in the new tax regime, ask them to structure the CTC accordingly," said his father.
Sanjay’s father is right to suggest
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