Confused About CTC Calculation? Need Help Understanding Salary Components and D.A. Allocation

Hello seniors,

This is Ruban. I have completed my MSW and am currently searching for a job. I recently attended an interview where they mentioned a CTC of 300,000 Rs per annum with a basic salary requirement of 7,000 Rs. I have a question regarding the calculation of CTC, specifically whether we should include both the employee and employer contributions in the CTC and what percentage should be allocated for D.A. I have attached a CTC calculation that I worked on; please review it and provide feedback so that I can correct any mistakes. I look forward to your reply, and your valuable input will be greatly appreciated.

Thank you.

All you have done is correct, but the special allowance you have fixed is very high. You can add a bonus, LTA, gratuity, and any other components paid to the employee in his CTC.

Regards,
S. Sethupathy
Excellent HR Services,
Erode.

Since CTC is the cost to the company, the employer is interested in knowing how much a person appointed at a basic salary of Rs. 7000/- will cost them in total. The amounts need to be divided in such a way that the employee also receives some relief in income tax.

The components to consider are as follows:
- BASIC 7000
- HRA (40-50% OF BASIC)
- Conv. (up to 15-20% of basic)
- MDCL (ok)
- Periodicals and Magazines (500/-)
- Special allowance (60% of basic)
- Entertainment allowance/ inconvenience allowance (@ 15% of basic)
- Additional components to add:
- Employer's contribution to PF (13.61%)
- BONUS (20% of basic)
- Gratuity (4.81% of basic)
- LTA (Equivalent to 2 times the monthly basic)
- Insurance Premium against mediclaim/accident policy (6% of basic) [since the medical allowance only covers regular ailments and not accident-related expenses]

It is important to note that the employee's contribution and professional tax are not paid by the employer; these are deducted directly from the employee's salary.

Hello Senior,

Thank you for your reply. I have gained an overall idea about CTC. In CTC, we should mention only the employer's contribution towards the employee. In the monthly salary, we should only deduct the employee's contribution. For the employer's PF contribution, is the ceiling amount correct or wrong? Should we calculate it from the basic instead? Also, in what percentage should we calculate D.A.?

Thanks and Regards,
Ruban Kumar.R

Hello seniors, my doubt is in CTC. Should we deduct 12% from the employee or the employer's contribution of 13.61%? Please, can you provide me with a percentage for calculating D.A?

Thanks and regards,
Ruban

Dear Ruban,

Employer PF is not taken into account when calculating CTC, and D.A depends on the inflation rate, with government organizations usually providing it.

Regards,
Asma

Subject: Re: How to Calculate Salary Package - Please Help

Since CTC stands for cost to the company, the employer is interested in knowing how much a person appointed at a basic salary of Rs. 7000/- will cost him in total. The amounts need to be divided in such a way that the employee also receives some relief in income tax.

Breakdown:
- BASIC 7000
- HRA (40-50% OF BASIC)
- Conv. (Up to 15-20% of basic)
- MDCL (OK)
- Periodicals and Magazines (Rs. 500/-)
- Special Allowance (60% of basic)
- Entertainment Allowance/Inconvenience Allowance (@ 15% of basic)

In addition to the above, add:
- Employer's contribution to PF (13.61%)
- Bonus (20% of basic)
- Gratuity (4.81% of basic)
- LTA (Equivalent to 2 times the monthly basic)
- Insurance Premium against mediclaim/accident policy (6% of basic) [since medical allowance only covers regular ailments, not accident-related expenses]

Delete:
- Employee's contribution
- Professional tax (as these are not paid by the employer; they are deducted from the employee's salary).

Please let me know if you need further assistance.

Dear Asma,

I would like to tell you that in this regard, i.e., CTC, it means company cost; in other words, whatever expenses the company pays to employees, so in this concept, PF, ESI, Gratuity, Bonus, all parameters come under it because the company pays it all. When you are fixing the basic amount, at that time, you have to take into consideration minimum wages because the Basic should not be less than it. So, you have to fix some percentage. Based on my experience and knowledge, HRA calculation should be 5% of basic (as per government rules).

Under CTC, employee deduction is not taken because it is a second part after joining.

Thanks & Regards,
Sharad,
Executive HR & Admin,
MNC

I saw the attached CTC sheet, but as suggested by Pankaj Ji, I calculated the sheet, but the answers are different. Kindly help me to calculate it in the right manner. Thank you in advance.

Regards,
Sarika

Conceptually, there are only two mistakes in CTC Calculation attached by you. i) Employees' contribution to PF is deducted from the gross salary payable to the employee; hence, it is being paid from the employee's pocket and not from the employer's pocket and should not be added to the Cost to Company (CTC). ii) Again, P Tax is deducted from the employees' salary, i.e., paid from the employees' pocket; hence, it should not be part of CTC.

It is not mandatory to pay DA in the private sector, and many organizations do not have DA in their salary structure. Some companies do pay DA either as a Fixed DA or by way of applying some formula or percentage.

CTC Calculation should ideally include all costs incurred on the employee's salary and perks. The definition of perks and whether to include them in CTC is always argued and debated. For example, some companies include the cost of free transport and canteen subsidy in CTC, while others don't. Some companies include gratuity in CTC, while some don't, arguing that it is payable only after 5 years of service.

In the case of Bonus, if it is payable, it needs to be added to CTC.

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Hello senior;

Thank you for your reply, and I got an overall idea about CTC. In CTC, we should mention only the employer's contribution toward the employee. In the monthly salary, we should deduct the employees' contribution. In the employer's PF contribution, is the ceiling amount correct, or should we calculate it from the basic? In what percentage should we calculate D.A.?

Thanks and Regards,
Ruban Kumar.R

There is a mistake in the calculation of Employee PF, ESI & Professional Tax as they are not included in CTC. These are deductions that are subtracted from the Employee's Gross Salary.

Only the Employer's contributions are calculated in CTC, such as Employer PF, ESI Bonus, Gratuity, and other facilities like Insurance, GSLI, Medical policy, etc.

Cost to company includes:

1. Salary: Basic + DA + HRA + CCA

2. Other Allowances: Books & periodicals + servant allowance + any other allowances

3. Statutory payments: Provident Fund + Bonus + Gratuity

Exclusions:

1. Employee PF Contribution

2. ESI Contribution

3. Profession Tax

The calculation would be as follows:

CTC

Per month: $25,000

Yearly: $300,000

Basic: $7,000 ($84,000)

HRA: $2,800 ($33,600)

Conveyance Allowance: $800 ($9,600)

Medical Reimbursement: $1,250 ($15,000)

Education Allowance: $200 ($2,400)

Food Coupon: $1,000 ($12,000)

Special Allowance: $10,315 ($123,780) (other allowances)

Total Deductions:

Employee PF: $780 ($9,360) (not part of CTC)

Employer Contribution: $780 ($9,360)

Employee ESI: $0 (0)

Employer ESI:

Professional Tax: $75 ($900) (not part of CTC)

Total Deductions: $1,635 ($19,620)

Net CTC: $25,000 ($300,000)

(Figures in brackets represent per year)

Additionally, the following can be included proportionately deducting from special allowances/other allowances:

1. Ex-gratia/bonus: $550 ($6,600) (Minimum bonus)

2. Gratuity (Basic + DA x 15 x years / 26): $338 ($4,050) (calculated for one year)

3. LTA: $1,250 ($15,000)

Employee PF is not considered a part of CTC. Professional tax is not a part of CTC. Special allowance can be fixed at Rs. 1000. Other components could be Bonus, LTC (a percentage on basic), Fuel allowance, and Gratuity.

Regards,
Raghav