People working in the organized sector must have heard words like CTC, basic salary, net salary, and gross salary. Often people ask each other about CTC and basic salary etc. in conversation. Basic salary plays a very important role in your salary structure. But how is the basic salary prepared, what is the difference between net salary and gross salary, and what is included in CTC, many people do not understand these things properly despite being employed. If you are employed or have recently become employed, then you must know about it.

First of all, understand what is basic salary.

Basic salary is the amount on which both the company and the employee agree. Basic salary is the base of your salary structure. All the components of the salary package are calculated on this basis. The basic salary is 40-45% of the total CTC. It does not include HRA, bonus any kind of tax deduction, or any additional compensation, overtime, etc.

How is the basic salary decided?

At present there is no fixed definition of salary. Companies take advantage of this. While preparing the salary structure, many times companies keep your basic salary low and increase other allowances. In such a situation, you cannot force the company to decide your basic salary according to you. But if your basic salary is very low, then you can request the HR department in your company to increase it. Usually, while preparing the basic salary, the person's job experience, job role educational qualification, etc. are examined.

Effect of low or high basic salary on you

Both the situations of low and very high basic salary affect you. Tax is always applicable to basic salary, so it should not be more than 40 to 50% of CTC. But if it is reduced too much then it affects your salary structure. The biggest disadvantage of a low basic salary is that your PF contribution cannot be increased. According to the rules of EPFO, 12 percent of the basic salary and the DA of the employee goes to the PF fund every month. The company also has to contribute the same amount to the employee. In such a situation, if your basic salary is less, then your PF will also be deducted less. This will cause you a loss of lakhs of rupees in the long run.

What is the gross salary

The amount that is formed by adding dearness allowance, house rent allowance, conveyance allowance, and all other allowances along with the basic salary and before any kind of deduction is called gross salary. Suppose your basic salary is 20000, if you add 4000 rupees dearness allowance, 9000 rupees house rent allowance, 1000 rupees conveyance allowance, and 5000 rupees other allowances to it, then your gross salary will be 39000 rupees.

What is Net Salary

The amount you get as salary after deduction of tax, provident fund, and other types of deductions from gross salary is called net salary. Net salary is the take-home salary of an employee i.e. it is the final amount that comes into the employee's account every month.

Now understand CTC also.

CTC means (Cost to Company) i.e. the money that the company spends on its employees in a year. CTC includes everything from your basic salary along with travel allowance, communication allowance, medical insurance savings contribution, etc. Many times companies also include gratuity in it. Gratuity is the amount given by any company to its employee as a reward for his good work, which is given to him after he leaves the job.