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Everything You Need To Know About CTC

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December 15, 2022


What’s Inside

Are you a salaried employee who is not quite sure what CTC means? While most people may be aware of the complete form of CTC — simply the cost-to-company — they may not know what CTC is in salary. Many wrongly confuse their CTC with their net salary. 

To understand what annual CTC means, let's look at what this term means, includes, and how this metric is calculated. 

What is CTC in Salary?

CTC is an acronym that stands for cost-to-company. CTC is from the employer's perspective and represents the total amount of expenditure 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 monthly, their in-hand salary, also known as take-home salary, will always be lower than the CTC.

Critical Components of CTC

CTC has three primary components - basic salary, allowances, and deductibles. Here's a quick overview of each of these three parts.

Basic salary

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 annual 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 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.

  • Dearness Allowance (DA)
  • House Rent Allowance (HRA)
  • Medical Allowance
  • Conveyance Allowance
  • Entertainment Allowance
  • Other Allowances

According to the Income Tax Act 1961 provisions, specific allowances are fully exempt from tax, while others are either partially 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 annual 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, including 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.

How to Calculate CTC

There's a simple formula that organisations follow to calculate annual CTC. Here's what it is.

CTC = Gross Salary + Direct Benefits + Indirect Benefits + Savings Contributions or Deductions

In the formula,

  • Gross Salary = Basic salary + allowances like DA and HRA, among others
  • Direct Benefits = Monetary benefits such as incentives and bonuses, among others
  • Indirect Benefits = Non-monetary benefits like insurance, leased accommodations & food coupons, among others
  • Savings Contributions = Contributions towards retirement like gratuity and provident fund Deductions = Tax deductions like income tax and professional tax‍

Example of How CTC is Calculated

Here’s a detailed example to help you fully understand the meaning of CTC and how it is calculated.


Salary Component 

Amount (per annum)

  1. Basic Pay 

Basic Salary


  1. Allowances

Dearness Allowance

House Rent Allowance

Medical Allowance

Conveyance Allowance

Entertainment Allowance

Overtime Allowance







  1. Gross Salary (A + B)


  1. Direct Benefits 


Sales Incentives



  1. Indirect Benefits 


Food Coupons



  1. Retirement Contributions 

Provident Fund 

(12% of the Basic Salary)


(12% of ₹5,20,000)

  1. Deductions 

Professional Tax

Income Tax (TDS)



  • Total CTC (C + D + E + F)


As you can clearly see, using the formula mentioned above, the total cost-to-company comes up to around ₹8,81,400.

CTC Vs. Take-Home Salary

Are they the same?
No, they are not. The take-home salary is the employee's actual amount each month, whereas the CTC is the total cost to the company.

An employee's take-home salary is the amount they receive after deducting tax, various benefits, and other retirement contributions. Conversely, the CTC 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.


In conclusion, understanding the concept of CTC in salary is crucial for employees to have a clear picture of their compensation package. CTC represents the total cost to the company and includes various components such as basic salary, allowances, and deductibles. It is essential to differentiate between CTC and take-home salary, as the latter is the actual amount an employee receives after deductions. Calculating CTC involves adding up the gross salary, direct and indirect benefits, and savings contributions or deductions. By comprehending the components and calculation of CTC, individuals can better evaluate their overall compensation and make informed financial decisions.

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Frequently Asked Questions

1. Is CTC the same as the monthly salary?

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 income is the sum you get after all deductions and savings contributions.

2. What is an example of CTC in salary?

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.

3. What is the meaning of CTC in my salary?

CTC in salary refers to the cost to the 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, and the savings contributions made.

4. Is CTC my in-hand salary?

No, your in-hand salary is part of the take-home salary, which is the amount the employee gets each month, whereas the CTC is the total cost to the company. You can use this formula to calculate: Take Home Salary = Gross Salary - Income Tax - Employee's PF Contribution(PF) - Prof. Tax.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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