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Cost to Company (CTC) is the total cost that a company spends on an employee, including their salary, benefits, bonuses, and any other expenses related to their employment.
It is the term businesses use to describe the company’s total expenditure on employees. It is one of the crucial metrics businesses use to determine the financial impact of hiring and retaining employees.
It helps both the employer and the employee to understand the total compensation package being offered.
CTC may vary based on various factors, and it is different from the take-home salary, which is the amount an employee receives in their bank account after taxes and deductions have been applied.
Basically, CTC includes all the components of the salary structure in the Indian Payroll System. Employers pay a fixed amount of money to employees known as salary.
This is the fixed component of the salary that an employee receives every month.. It is taxable and forms 40% to 50% of CTC.
This is an allowance that is paid to employees to adjust the cost of living due to inflation.
The amount is fully taxable and is usually the compensation paid to employees for their excellent work.
The expenses associated with transportation, accommodation and meals while traveling for business purposes.
It is a form of monthly aid to eligible tenants to cover the cost of their accommodation. According to section 10-13A of the IT Act, it is exempted from tax under a few conditions.
The amount a company pays an employee every month irrespective of their health status. It is often confused with medical reimbursement.
It covers an employee’s travel cost when they attend work-related meetings. Only the fare of rail or airplane, or bus incurred is exempt.
The commuting expenses the employees bear between the employee’s residency and office location.
The organization’s monthly sending to meet mobile expenses for business purposes.
It is the money that does not fit under any other head or the residual factor.
CTC (Formula)= Gross salary + (Direct Benefits + Indirect Benefits + Saving Contributions) or deductions
For instance, Ram’s basic salary is Rs. 20,000. The employer pays an
additional Rs. 4,500 for health benefits, and the employee contributes 10%
to EPF.
CTC of the employee = Rs. 20,000 + Rs. 4,500 + 10% of Rs. 20,000
= Rs. 26,500
There are three kinds of benefits included:
CTC = Direct Benefits + Indirect Benefits + Savings Contribution
It is the monthly amount payable to the employee and is taxed. They include:
It is the advantage that an employee receives without paying for them. They are usually an expense to the company and not the employees. They include:
It is usually the monetary value added to an employee’s CTC, such as EPF. They include:
It is the employee’s salary before deductions. It comprises of:
Here is the formula to calculate gross salary of an employee,
Gross Salary = Basic pay + allowances + Perquisites
It is usually a taxable amount after including deductions like PF, LIC, PPF, and Mutual fund.
It is the employee’s net pay after deducting the gross salary amount. While some deductions are mandatory, others are dependent on the organization’s policy.
Here is the formula to calculate net salary of an employee,
Net salary = Gross salary – Income Tax (TDS) – Professional Tax – Gratuity – EPF
Suppose Raghav has applied to a company ABC for a job and was offered a pay package, the details are tabulated below:
| Salary Component | Amount (Annual, INR) |
|---|---|
| CTC | 6,00,000 |
| Basic Salary | 4,00,000 |
| Travel Allowance | 50,000 |
| House Rent Allowance | 45,000 |
| Medical Allowance | 45,000 |
| Leave and Travel Allowance | 60,000 |
| Provident Fund Contribution | 84,000 |
| Gratuity | 29,630 |
Now, as per the formula:
Gross Salary = 6,00,000 – (84,000 + 29,629) = INR 5,45,629
Now, subtract the total income tax that is calculated at 5% from INR 2,5 lac to 5 lac and 10% from INR 5 lac to 7.5 lac.
Net Salary = 5,45,629 – 33,637 = INR 5,11,992
Cost to Company, it is the cost a company spends on hiring an employee. It includes the salary and a few other intangible expenses. While Gross Salary is the amount that is payable to the employee before deductions of taxes and after deducting EPF and gratuity from the CTC.
Cost to Company refers to an employer’s total cost on an employee, including components like basic salary, allowances, bonus, provident fund, etc. Therefore, it is the total amount the organization spends on an employee.
On the other hand, take-home salary, is also known as net salary, the amount that an employee receives after deduction of various components like tax deductions, EPF contributions, etc. It is the actual amount that an employee receives in hand as their salary.
Gross salary is the total salary paid to an employee before deductions like taxes, insurance, or any other benefits. It is the total amount that the company agrees to pay the employee as a part of the employment contract.
Net Salary, also known as take-home salary, is the amount that an employer receives after the deduction of various expenses and taxes. It is the actual amount that an employee receives in hand as salary.
The difference between gross and net salaries are due to various deductions like income tax, employee provident fund (EPF) contributions, insurance premiums, etc.
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