A Guide to Cost To Company (CTC)
Cost to Company: Meaning, Components, and Calculation
In this post, we will discuss what Cost to Company (CTC) means, what all components it includes, and how it is different from take-home salary. We will also look at how CTC is calculated, its breakup, and why understanding CTC is important for both employees and employers.
Let’s look at them in detail:Â
What is the meaning of cost to the company?
Cost to Company, or CTC, is the total amount a company spends on an employee in a year. This cost depends on the employee’s salary and other benefits provided by the company.
CTC includes the basic salary along with benefits like EPF, gratuity, house rent allowance, food coupons, medical insurance, travel expenses, and similar perks. In simple terms, CTC is the overall cost an employer bears to hire and keep an employee.
Formula:
CTC = Gross Salary + Benefits
For example, if an employee earns a salary of ₹40,000 and the company spends ₹5,000 on health insurance, the total CTC comes to ₹45,000. The full CTC amount is not paid as cash to the employee, as some parts go towards benefits.
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:Â
- 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
- 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.
What is the difference between Take home salary and cost to company(CTC)?
Take-home salary is the actual amount an employee gets in hand after all deductions like tax and PF are cut.
CTC means the total cost a company spends on an employee in a year. It includes salary, allowances, benefits, deductions, and other expenses paid by the company.
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.
|  | Salary head | Amount (Annual) |
|  | Basic | 12,00,000 |
| Add Allowances | DAÂ | 8,00,000 |
| HRA | 8,00,000 | |
| LTA | 3,00,000 | |
| Bonus | 4,00,000 | |
| Food coupon | 50,000 | |
| Flexi | 5,00,000 | |
|  | Gross Salary | 40,50,000 |
 Add benefits | Employer PF | 1,20,000 |
| Medical insurance | 40,000 | |
| Additionals | 1,40,000 | |
| Total CTCÂ | 43,50,000Â |
CTC = Direct benefits + Indirect benefits + Saving contributionsÂ
In case of take-home salary
| CTC | 43,50,000Â | |
| Less –Â | Employer PF | 1,20,000 |
| Insurance | 40,000 | |
| Employee PF | 1,20,000 | |
| PTÂ | 2,500 | |
| Netpay (takehome) | 41,67,500 |
Benefits of CTC
In India, Cost to Company (CTC) benefits are generally divided into three parts:Â
- Direct benefits (monetary benefits)
These are the amounts that form part of an employee’s salary and contribute to the take-home pay after income tax and other deductions. This usually includes basic salary, dearness allowance, HRA, conveyance allowance, earned leave, LTA, and similar components. - Indirect benefits (non-monetary benefits)
These are expenses paid by the employer on behalf of the employee. Employees enjoy these benefits without directly paying for them. Examples include interest-free loans if provided, company-leased accommodation, food coupons, and similar facilities. - Savings
Savings such as provident fund, gratuity, and related contributions are also included as part of an employee’s CTC.
What is the Cost to Company salary structure or CTC breakup?
CTC breakup refers to the different parts that make up an employee’s total salary. It includes salary components, allowances, benefits, and the final take-home pay.
The main parts of a CTC breakup are:
- Basic pay is a core part of the CTC and usually forms around 50 percent of the total salary.
- HRA is given by the employer to help the employee manage house rent and accommodation expenses.
- EPF contribution is 12 percent of the basic salary and DA, which the employer deposits into the employee’s provident fund account.
- Medical allowance is a fixed amount paid by the employer to help cover medical expenses.
This brings us to the end of our post on Cost To Company (CTC). If you have any questions or thoughts, feel free to share them in the comments below.
FAQs
Q. What is the expected CTC?
Expected CTC is a word that company and candidate use to understand what candidates are expecting from the company in a form of salary package.
Q. What is the basic salary in CTC?
It refers to the fixed payment which is given to the employee before the deduction and additional payment.
Q. Is cost to company (CTC) the same as take-home salary?
No. CTC is the total amount a company spends on an employee, including salary and benefits. Take-home salary is the actual amount an employee gets in hand after tax and other deductions are cut from the salary.
Q. What is the difference between Gross Salary and Cost to Company?
Cost to Company (CTC) is the total amount a company spends on an employee. It includes the salary along with benefits like PF, gratuity, bonuses, and other related costs. Gross Salary, on the other hand, is the amount an employee earns before tax deductions. It is calculated after removing EPF and gratuity components from the CTC.
