CTC and Income From Salary
You don’t actually pay tax on your CTC, but on something called “income from salary.” It’s one of the five ways the IT department identifies income sources.
For eg, the company's contribution to EPF (along with your contribution) is part of your CTC.
CTC is what the company considers as its total money spent on you directly.
There are elements which are part of your CTC, but not considered from a tax perspective.
Elements Of CTC
Basic salary HRA Special allowance Bonus Employer’s contribution to EPF Employer’s contribution to gratuity Medical allowance Conveyance allowance Meal coupons Etc.
What CTC Doesn’t Include
medical allowance up to Rs. 15,000 provided you submit bills, conveyance allowance up to Rs. 19,200, food coupons up to Rs. 26,400 in a year, employer's contribution to EPF, and gratuity etc.
CTC And HRA
If you pay house rent and have HRA, then the following 3 can be reduced from your salary: 40%-50% of your basic salary, actual rent paid (10% of your basic salary).
These numbers add up and your taxable salary may be significantly less than your CTC.
Know Your Taxable Income
Make sure you know your taxable income before you start planning to save taxes. It may just happen that you don't even need to make tax saving investments.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.