Components of Cost to Company (CTC)
CTC is basically the sum total of Direct Benefits (sum paid to an employee on a yearly basis), Indirect Benefits (sum the employer pays on behalf of the employee), and Saving Contributions (saving schemes the employee is entitled to).
CTC = Direct Benefits + Indirect Benefits + Savings Contributions
Direct Benefits
- Basic Salary
- Dearness Allowance (DA)
- Conveyance Allowance
- House Rent Allowance (HRA)
- Medical Allowance
- Leave Travel Allowance (LTA)
- Vehicle Allowance
- Telephone/Mobile Phone Allowance
- Incentives or bonuses
- Special Allowance/City Compensatory Allowance, etc.
Indirect Benefits
- Interest-Free Loans
- Food Coupons/Subsidized meals
- Company Leased Accommodation
- Medical and Life Insurance premiums paid by the employer
- Income Tax Savings
- Office Space Rent
Savings Contribution
- Superannuation benefits
- Employer Provident Fund (EPF)
- Gratuity
### Let's elucidate what CTC looks like with an example:
Mr. A has been hired by a company at a CTC of Rs. 4,00,000. A breakdown of his yearly income is illustrated below:
- Basic Salary: Rs. 2,20,000
- HRA: Rs. 88,000
- CA: Rs. 19,200
- Medical Expenses: Rs. 15,000
- EPF Contributions: Rs. 21,600 (@12%)
- Gratuity: Rs. 18,326
- Special Allowance: Rs. 17,874
Gross Salary
Gross Salary is employee provident fund (EPF) and gratuity subtracted from the Cost to Company (CTC). To put it in simpler terms, Gross Salary is the amount paid before deduction of taxes or other deductions and is inclusive of bonuses, overtime pay, holiday pay, and other differentials.
### For the same example listed above, let's deduce Mr. A's yearly salary by subtracting gratuity and Employee Provident Fund contributions.
Rs. 4,00,000 - Rs. 21,600 - Rs. 18,326 = Rs. 3,60,074
This amount will now be considered as his gross salary, which is his total personal income before taking taxes and other deductions into consideration.
Net Salary or Take-Home Salary
- Net salary, more commonly known as Take-Home Salary, is the income that the employee actually takes home once tax and other such deductions are carried over with. It refers to the in-hand figure that is calculated after deducting Income Tax at source (TDS) and other deductions as per the relevant company policy.
- Net Salary is Income Tax deductions, Public Provident Fund, and Professional Tax subtracted from gross salary, which means,
Net Salary = Gross Salary (-) Income Tax (-) Public Provident Fund (-) Professional Tax
*** Employee Provident Fund is a stipulated percentage of the employee’s salary, typically no less than 12% of the basic salary. Whereas, gratuity is a percentage of the basic salary, typically 4.81% of the employee’s basic salary.
### Mr. A's Salary Example:
In Mr. A's case, he comes under the 10% tax slab as his salary falls between the Rs. 2,50,001- Rs. 5,00,000 range.
- Mr. A's income stands at Rs. 3,60,074.
- 10% of Mr. A's income would come up to Rs. 36,007.4.
- So, Mr. A's income after tax and other deductions would be Rs. 3,24,066.6.
For more details, share your email.
I hope this will be helpful in CTC Designing.
Regards, Amit