What is CTC in Salary?

CTC stands for Cost to Company.

Cost to Company is the total amount that is spent by a company (in direct or indirect ways) on their employees. It denotes the entire salary package  offered to the employee by the company. CTC includes monthly components like basic pay, travel allowances, reimbursements, and annual components like gratuity, annual variable pay, annual bonus, and overtime pay.

CTC or Cost to Company is not equal to the in-hand salary amount of the employee. It has numerous different components that are not received in the form of cash or in-hand salary. These components are declared by the company during the process of hiring and onboarding.

Cost to Company = Gross Salary + PF + Gratuity

Important terms to know before calculating the CTC

Basic Salary

The component of your salary which is transferred in your account as your in-hand salary is known as the Basic Salary. The percentage amount of basic Salary is mentioned in the salary structure provided to the employees by the company. The basic salary of every employee varies, depending upon their position, department, and job role in a company.

Gross Salary

The amount of your salary left after deducting gratuity and employee provident fund from cost to the company is termed as the gross salary. It is the amount before declaring income tax deduction, bonus, overtime and holiday pay.

Gross Salary = Basic Salary + House Rent Allowance + Other Allowances

Net Salary

The amount credited to your account every month is termed as the net salary. It’s given by the employer after deducting taxes and taking into account other deductions such as public provident fund, professional tax subtraction, etc. The deductions are subjective to company policies and employee position in the company.

Net Salary = Basic Salary + House Rent Allowance + Other Allowances - Income Tax - Employer's Provident Fund - Professional Tax

How to calculate CTC from basic Salary?

CTC includes all monetary and non-monetary amount that is spent on an employee by the company.

These are some of the In-hand components of the CTC – 

• Dearness Allowance (DA)
• Bonuses
• Overtime pay
• Conveyance allowance
• House Rent Allowance (HRA)
• Medical allowance
• Leave Travel Allowance or Concession (LTA / LTC)
• Vehicle Allowance
• Telephone / Mobile Phone Allowance

CTC also includes compulsory deductibles. These include deductions made for provident fund and medical insurance. These are a part of the compensation structure but they are not granted as the in-hand salary.

CTC = Direct Benefits + Indirect Benefits + Savings Contributions

To help you understand better here is an example of breakdown of CTC :

Component of salary

Amount (in Rupees)

Taxable amount

Source: WIkipedia

How to calculate In-hand Salary?

In order to calculate your In-hand salary from the CTC, deduct the following variables from it –

1. Provident fund Amount
2. If your salary structure has any amount fixed for your medical insurance deduct that amount
3. If your CTC has a mention for any performance bonus which is paid quarterly or annually (depending upon your company policies) then deduct it from CTC
4. Deduct any coupon/ Medical or other reimbursements from the total amount.
5. Depending upon the legal guidelines, defect the liable taxes from the amount.
6. Divide the final amount left after all these deductions by 12
7. The final result will be your monthly In-hand Salary.

These deductions are also subjective to the company policies. They might vary depending upon different organisations, departments and job profiles.

Difference between CTC and In-hand Salary

CTC or Cost to Company is the total amount of direct and indirect benefits you received from the company. It includes all taxes, insurance, allowances, and other added expenses. Whereas in-hand salary refers to the amount that is left after deducting all the added components from the CTC. It is the amount that is directed to your personal account at the end of every month in the form of your monthly salary.

It is important to have information about the components of your salary. It helps in giving a better idea about your income rate and planning factors like leaves and investments in a better manner.

It refers to the total amount of direct and indirect benefits you receive from a company like medical insurance and travel allowance.

It refers to the amount left after deducting provident fund amount, tax, salary loss due to leave and addition of reimbursed amount.

It is the total amount declared in your salary package in your offer letter.

It is the amount that is transferred to your personal account, at the end of every month

Conclusion

The world is stepping ahead as a more and more populated global market. Most of us at some point or the other, will land in the corporate sector and get entitled to a monthly salary with an yearly package. But it is not as simplified as it sounds.

There are various different components to the monthly salary paid to the employee by a company. After working hard enough to deserve your rightful pay, it is also necessary to be aware of the technicalities and components which are a part of the entire process.

Crafted by Aditi Srivastava

Optimised by Ayush Shukla

Share on Facebook

Tweet

Follow us