Cost to Company (CTC): What is CTC in Salary and How is Basic Salary Calculated?

What is CTC in Salary?
 

CTC, or Cost to Company, is a term commonly used in India to describe the total salary package of an employee. It encompasses all the expenses a company incurs on an employee in a year. This includes not only the basic salary but also various benefits and allowances, such as health insurance, bonuses, and other perks. Essentially, CTC is a comprehensive measure of an employee’s total earnings and benefits from their employer, offering a holistic view of their compensation beyond just the take-home salary. Understanding CTC is crucial for employees to gauge the true value of their remuneration package.

How is the Cost to the Company calculated in a salary?
 

CTC is the total yearly compensation that an employee receives, and it includes all the benefits and the in-hand salary. It varies for each employee depending on their base pay, perks, and variables. The CTC is calculated by adding the gross salary and the benefits such as EPF, gratuity, allowances, insurance, and travel expenses. Thus, CTC is a combined expense that an employer bears for hiring and sustaining its employees.

Mathematically, the CTC can be expressed as:

Cost to company = Gross Salary + Allowances + Gratuity + Group Insurances + Other benefits

CTC elements

Several elements constitute the CTC, including the basic salary, HRA, allowance, insurance, and more. Let us understand various elements of the CTC structure.

Basic salary
 

It is the base salary that employers pay. It is not inclusive of any bonuses or other additions. The base salary is often less than the total money you earn every month. Additionally, when it comes to hikes, employers apply it to the base salary alone.

House Rent Allowance (HRA)
 

HRA is a component of the salary that helps you pay for your accommodation. Almost all employers have an HRA component in their salary structure, and this amount is wholly or partially tax-free for employers who are availing accommodation. But for employees who are not staying in a rented facility, the amount would be taxable.

Phone and internet allowance

This element of CTC is meant to help you pay for your phone and internet expenses incurred as part of work. It was primarily exclusive to employees who needed to communicate with people outside their organisation as part of their jobs. But as more and more people have started working from home, many companies have added this element in the CTC for more employees.

Incentives or bonuses

Your CTC could also include other bonuses and incentives according to your employers' policies. It could include performance bonuses, yearly or quarterly bonuses, etc.

Special allowances

Special allowances are money not included in any other category in the CTC. For example, if your CTC is ₹10 lakhs and all other elements cover ₹8 lakhs, the remaining money would go towards a special allowance.

Dearness Allowance (DA)

Dearness allowance is monetary aid to meet the increasing living cost. It is primarily applicable only to central and state government employees. In some cases, private employers are also known to pay their employees with DA. The government announces the DA amount every year with the budget.

Indirect elements

Your CTC could also have some indirect benefits. These could increase your CTC, but not necessarily your in-hand salary. For instance, if you have taken a loan from your employer, it could be added to your CTC. But all employers need not give you a loan when you are in need. In such cases, you can get a personal loan. Getting a personal loan at Metra Trust is fast and easy. Click here, fill out your details, and apply for a personal loan. If you meet the eligibility criteria, you will receive the loan amount within hours. Further you can keep track of your loan payments with the Metra Trust Banking App.

Net salary

After all the deductions, your net home salary is your take-home salary. Your net salary could differ in some months when your company pays a bonus.

Leave travel allowance/Leave travel concession (LTA/LTC)
 

To cover the expenses for an employee travelling on leave, the employer also offers leave travel allowance or concession in their salary structure. Using the LTA, an employee can claim his/her actual travel cost when travelling on leave from work.

Vehicle allowance
 

Some employers offer vehicle allowance to their employees who travel to the office through their personal vehicle for offsetting the travelling cost. A vehicle allowance is usually a monthly compensation that an employee receives.

Conveyance allowance
 

To cover the cost of travel of an employee from their residence to work, employers offer a conveyance allowance. Conveyance allowance can be a fixed amount or a percentage fraction of your basic salary. It is also paid monthly in your salary.

Medical allowance
 

Medical allowance is a defined part of the salary and, an employee receives it irrespective of whether he is under treatment or not. It is different from medical reimbursement where you receive compensation only after producing your bills. Medical allowance forms a fixed fraction of your basic pay that you receive in your monthly salary.

What benefits are included in the CTC (Cost to Company)?
 

Along with the gross income that you receive every month, a CTC also includes several benefits such as insurance, savings, housing, and travel allowance. Following are some direct and indirect benefits included in the CTC.

· Direct benefits
 

Direct benefits in an individual’s salary include his/her net wages, reimbursement, and other compensations. The direct benefits are usually taxed if an employee falls under the taxable slab.

· Indirect benefits
 

Indirect benefits are not directly paid to the employees. Instead, they receive it in the form of insurance coverage, medical cover, and more. Since they are an expense to the company, they are added to the overall CTC offered to the employee.

· Savings and Contributions
 

In addition to the direct and indirect benefits, companies also offer savings constituents such as EPF, gratuity and more. Usually, these components are offered in a lump sum at the time of retirement or employment termination.

· Differences between CTC and net (in-hand) salary

CTC (Cost to Company) represents the total expenses a company incurs for an employee, including salary, benefits, and allowances. In contrast, net (in-hand) salary is the actual amount an employee receives after deductions like taxes, provident fund, and other contributions.

What is Gross Salary?
 

Gross salary is the amount payable to the employee before making any voluntary deductions. So, it is the amount an employee receives prior to taxes and other deductions such as employee welfare deductions, insurance premium deductions, etc.

The gross salary includes all the benefits, allowances, and service costs entitled to an employee. Once the deductions are done, the employee receives the in-hand salary, also known as the net income.

What is the difference between gross salary and CTC?
 

Gross salary and CTC may sound similar, but they vary significantly. The CTC is the total amount that a company bears to hire and sustain its employees whereas, the gross salary is the total income before deduction that an employee receives from his/her employer.

If we remove the PPF deductions, group insurance premiums, gratuity, and other deductions from the cost to the company (CTC), it will become the gross salary. Subsequently, if we further deduct taxes and other mandatory deductions, it becomes the net salary that an individual takes home.

The CTC includes direct, indirect, and savings benefits whereas the gross salary is the total income of an employee before taxes and deductions.

While it is important to decipher the important component of your salary structure, you must also consider finding a safe venue to park your salary and keep it from devaluating due to inflation. Metra Trust offers a Corporate Salary account that provides one of the highest interest rates on salary/savings accounts of up to 7.25%. Our free general banking services and free ATM withdrawals enhance your savings to achieve your financial goals.  

Understanding your CTC and its elements is essential to knowing your compensation. It could also help your budgeting, giving you a clear idea of which part of your CTC is meant for what purpose. So, ensure you analyse your CTC and make better financial decisions.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.