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Cost to Company ( CTC )

What is CTC? 

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. 

What does CTC include?

1. Basic 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.

2. Dearness Allowance (DA)

This is an allowance that is paid to employees to adjust the cost of living due to inflation.

3. Incentives and Bonuses

The amount is fully taxable and is usually the compensation paid to employees for their excellent work.

4. Conveyance Allowance

The expenses associated with transportation, accommodation and meals while traveling for business purposes.

5. House Rent Allowance (HRA)

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.

6. Medical Allowance

The amount a company pays an employee every month irrespective of their health status. It is often confused with medical reimbursement.

7. Leave Travel Allowance or Concession (LTA/LTC)

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.

8. Vehicle Allowance

The commuting expenses the employees bear between the employee’s residency and office location.

9. Telephone and Mobile Allowance

The organization’s monthly sending to meet mobile expenses for business purposes.

10. Special Allowance

It is the money that does not fit under any other head or the residual factor. 

How to Calculate CTC? 

CTC Full Form, Components of CTC, CTC Formula

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

Is CTC calculated yearly or monthly?
CTC is usually the yearly expenditure that a company spends on employees. The company’s payment depends on the salary and variables of individual employees. 


What are the Cost to Company benefits?

There are three kinds of benefits included:
CTC = Direct Benefits + Indirect Benefits + Savings Contribution

1) Direct Benefits

It is the monthly amount payable to the employee and is taxed. They include:  

  • Basic salary: It is the core of an employee’s salary and significantly contributes to the received compensation.  
  • Dearness Allowance: It is usually an essential cost of living adjustment that helps employees tackle inflationary pressure. 
  • Conveyance Allowance: This is a type of reimbursement for the commutation cost between the employee’s residential and office location. 
  • House Rent Allowance (HRA): It is paid to an employee irrespective of their rent status and is tax-free. 
  • Medical Allowance: It is paid every month irrespective of the employee’s health status. 
  • Leave Travel Allowance: It is a type of allowance that covers an employee’s travel expenses while on vacation. 
  • Mobile Allowances: The company’s expenses on mobile and telephone used at the residence. 
  • Incentives and Bonuses: It is a type of allowance paid to an employee for their excellent work. 
  • Performance Bonus: It is a bonus paid to employees based on their performance. It is usually a percentage of the basic salary and is a part of the CTC.

2) Indirect Benefits

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:  

  • Health Care Costs: It covers the health care benefits provided to an employee, like health insurance, at times covering the family members too. 
  • Taxis/Buses for Commute: This happens when the organization provides charter bus or taxis for their employees to travel to the office. 
  • Low-Interest Loans: Only bank employees are allowed this, a loan at a subsidized rate. 
  • Meals and Snacks: Most modern office spaces are decked with meal and snack outlets for the employees to enjoy. 
  • Office Space Rent: Few companies bear the expense of a space that the employees use. 
  • Company Leased Accommodation: Many companies bear the additional overheads when an employee has to relocate for the job. 

3) Savings Contribution

It is usually the monetary value added to an employee’s CTC, such as EPF. They include: 

  • Gratuity Amount: It is paid at 4.81% as per the Indian law, and the employee loses the amount if he-she leaves the firm before completing 5 years tenure. 
  • Employer Provident Fund Contribution: 12% of the basic salary of an employee goes towards their PF account directly from the employer. 
  • Superannuation: A pre-defined amount is donated to an account; the employee withdraws at the time of their retirement. 


How to calculate Gross and Net Salary?
Difference between net salary, gross salary and CTC

A. Gross Salary

It is the employee’s salary before deductions. It comprises of: 

  • Basic pay includes salary remunerations, salary arrears, overtime incentives, etc. 
  • Allowances include HRA, travel allowance, medical allowance, special allowance, etc. 
  • Perquisites cover fuel charges, electricity rent, sick leave, etc. 

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. 

B. Net Salary

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 


Example of Gross and Net Salary Calculation from CTC:

Suppose Raghav has applied to a company ABC for a job and was offered a pay package, the details are tabulated below: 

Salary ComponentAmount (Annual, INR)
Basic Salary4,00,000
Travel Allowance50,000
House Rent Allowance45,000
Medical Allowance45,000
Leave and Travel Allowance60,000
Provident Fund Contribution84,000

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


Frequently Asked Question (FAQs):

1. What is the difference between Gross Salary and Cost to Company?

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. 

2. Is the Cost-to-Company same as Take-home salary?

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. 

3. How are gross and net salaries different?

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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