Are you a salaried employee who is not quite sure what CTC means? You're clearly not alone. While most people may be aware of the full form of CTC in salary — which is simply the cost-to-company — they may not know what exactly makes up the CTC. Many wrongly confuse their CTC with their net salary.
To understand what CTC means, let's take a closer look at what this term means, what it includes, and how this metric is calculated.
CTC is an acronym that stands for cost-to-company. CTC is from the perspective of the employer and represents the total amount of expenditure that they incur on an employee.
It includes monetary benefits, non-monetary benefits, retirement contributions, and other deductions. Now, since an employee only gets monetary benefits each month, their in-hand salary, also known as take-home salary, will always be lower than the CTC.
There are three primary components to CTC - basic salary, allowances, and deductibles. Here's a quick overview of each of these three parts.
It is the amount that an employer pays an employee for their services rendered to the organisation. Generally, most employers restrict the total basic pay of an employee to just 40% of their CTC. The amount an employee receives as basic pay from a company is fully taxable and forms a part of their in-hand salary.
Allowances are basically perks that an employer offers an employee. These perks can either be in the form of cash or kind. Here's a quick look at the various allowances that an employee might receive.
According to the provisions of the Income Tax Act, 1961, certain allowances are fully exempt from tax, while others are either partially exempt or fully taxable. These allowances also form a part of an employee's in-hand salary.
Deductibles are the sum that an employer deducts from the total CTC of an employee for tax and other purposes. They can be of two types - tax deductions and savings contributions.
Tax deductibles are taxes that an employer deducts and pays on behalf of the employee, and that includes professional tax and income tax (in the form of TDS). Savings contributions, also known as retirement contributions, on the other hand, are amounts that are deducted and deposited in retirement schemes on behalf of the employee. It includes gratuity, Employee Provident Fund (EPF), and contributions towards superannuation benefits.
There's a simple formula that organisations follow to calculate CTC. Here's what it is.
CTC = Gross Salary + Direct Benefits + Indirect Benefits + Savings Contributions or Deductions
In the formula,
Here’s a detailed example to help you fully understand the meaning of CTC and how it is calculated.
As you can clearly see, using the formula mentioned above, the total cost-to-company comes up to around ₹8,81,400.
No. The take-home salary is the actual amount that the employee gets each month, whereas the CTC is the total cost to company.
The take-home salary of an employee is the amount that they receive after the deduction of tax, various benefits, and other retirement contributions. The CTC, on the other hand, includes everything from the basic salary and allowances to savings contributions and deductions. It represents the total cost that a company would incur towards an employee in a year.
This sums up all the key details you need to know about what CTC in salary means. You can now read your payslip better and understand how to negotiate a pay hike or how to pitch for the salary at a new job. Keep in mind that whenever you apply for a new position, the CTC is what the hiring professionals typically discuss as the pay.
When you talk about the monthly salary, it can refer to the CTC or the take-home pay. Both these metrics are very different. The CTC is the cost the company incurs on an employee each month. But the take-home pay is the sum that you actually get in hand after all deductions and savings contributions.
A simple example of CTC in salary is if your basic pay is ₹50,000, your direct benefits amount to ₹15,000, and the indirect benefits add up to ₹5,000, your CTC will be ₹70,000.
CTC in salary refers to the cost to company. It is the total cost that the company incurs to hire and train an individual for a specific role. This cost includes the basic pay, the direct and indirect benefits, as well as the savings contributions made.
