If you are employed, then your HR and payroll department would calculate the income tax before giving salary and would send the salary to the account only after deducting the tax amount. You would be aware of this, but do you know on which CTC package or take home salary the income tax department calculates tax. If not, then we are giving you complete information about it.

First of all, it is important to know what is CTC and take home salary. CTC i.e. Cost to Company means how much expense or burden comes on the company after hiring you. Take home salary is also called gross salary. It means how much money is being given to you by the company. Gross salary is your actual income and it is also considered your actual salary.

On what is income tax deducted
As already mentioned, the amount included in CTC is the amount that the company spends on you in total. The amount written in CTC does not mean that the company will pay you that much money. Hence it is not considered your actual income. Gross salary is the amount that the company is going to pay you. Gross salary is considered your true income and income tax is also calculated on this basis.

Why tax is not deducted on CTC

CTC is the amount that tells the total cost of the company on hiring you. Components like PF and gratuity are also included in CTC, which are outside the scope of income tax. Apart from this, other facilities like bonuses, incentives, medical insurance, and term insurance are also included in CTC. Hence it does not tell your actual income and the Income Tax Department does not calculate income tax on it.

Why is tax deducted on gross salary?

According to the income tax law, gross salary is considered your actual income. It includes bonuses, allowances, basic salary, and other components. All these are combined to calculate your actual income. On this basis, the income tax department understands how much you will actually earn and then the tax is calculated. The amount that comes after deducting tax is deposited by the company in your account and this is your take-home salary.

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