Usually, every organisation has to define these kinds of terms, such as CTC, Basic Pay, and Take-home salary, as per the employee’s designations. But, before defining or negotiating with the employee, you need to know the right calculations, the difference between Cost to Company (CTC) and take-home salary, CTC breakup, and benefits. So,
In this post, we will discuss the following topics on a guide to cost to the company (CTC).
- Meaning of cost to the company?
- Components of Cost to Company (CTC)
- Difference between Take home salary and cost to company(CTC)?
- How to calculate cost to company (CTC) in salary?
- What are the CTC Benefits?
- What is the Cost to Company (CTC) breakup?
Meaning of cost to the company?
Cost to company or CTC refers to the total expenses of employees that employers spend annually. It is the complete package of expenses, including all earning components, deductions and additions. This includes basic pay, allowances, taxes, insurance, gratuity and any other benefit given by the employer.
For example – If an employee salary is Rs.2,00,000 PM, an additional amount is 10,000 for insurance, then the total CTC will be 2,10,000 per month that employee will not receive directly in cash.
Components of Cost to Company (CTC)
There are the following components, which includes all the non-monetary and monetary amounts.
1.The first and essential components of CTC is Basic Pay
2.Second part of CTC is allowances, such as –
- Dearness allowance (DA)
- Conveyance allowance
- Medical allowance
- HRA (House Rent Allowance)
- LTA (Leave Travelling Allowance)
- Vehicle allowance
- telephone/mobile allowances
- Canteen allowance
- Entertainment allowance
- Contribution towards gratuity fund
- Special allowance
- And others
3. And the final part of CTC is deductions under income tax act, such as –
- Professional Tax (its depends on the states, where your office is located)
- Provident fund
- ESI (Employee state insurance)
- And tax deductions (depends on the employee’s tax bracket).
So, the total CTC will calculate based on
Basic + Allowances + deductions = CTC
Difference between Take-home salary and cost to company (CTC)?
Take-home salary is the net amount that employees receive after the deduction, contribution of the amount.
Whereas, CTC is the sum of the total package amount, including all deductions, benefits, allowances and expenses, that company spends on employees annually.
How to calculate cost to company (CTC) in salary?
To calculate the CTC in salary, every company has its own policies and components structure. So, to calculate the CTC, we will see the process.
Leave travelling allowance
And other allowances
Add:- Benefits and deductions
PT (Professional Tax) (depends on employment state)
CTC = Direct benefits + Indirect benefits + Saving contributions
In case of take-home salary
|Cost To Company (CTC)|
TDS (Tax Deducted at Sources)
Take-home salary (NET PAY)
Take-home salary = [CTC – TDS – professional tax(PT) – provident fund contribution (PF) – other expenses]
What are the CTC Benefits?
There are two types of cost to company benefits in India –
1. Direct benefits (Monetary benefits)
Direct benefits are part of take-home payment which is paid to the employees after the deduction of income tax and other taxes and calculations.
2. Indirect benefits (Non-monetary benefits)
According to the company, it is the expenses that employers have to pay on the behalf of employees and that benefits employees enjoy without paying for them.
Such as interest-free loans (if any), the company leased accommodations, food coupons and others.
What is the Cost to Company (CTC) breakup?
CTC breakup is the various parts of the components, such as benefits, allowances, and take-home amount.
There are the following CTC breakup –
- Basic pay is one of the essential parts of the CTC, which covers half of the amount of the CTC.
- HRA is provided to the employee by the employer to meet the accommodation facility and expenses.
- 12% EPF (Employee Provident Fund) contribution on basic salary and DA that is deposited into the employee’s PF account.
- Medical allowances is a the fixed amount that is paid by the employer to the employee for the actual expenses.
This is the end of our discussion on a guide to Cost To Company (CTC). Let’s know your other questions and opinions on this topic. Mention below the comment box.