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What is CTC Salary

What is Cost to Company or CTC salary? How is it calculated? If your CTC package is so high, why do you get so little in hand?

Your company offered you a salary of Rs. 6 Lakhs per year. That means you should be getting Rs. 50,000 in hand every month.

But you get only Rs. 32,000 in-hand every month! Why? Where did the promised money vanish?

The concept of Cost to Company (CTC)

Simply speaking, CTC is the amount that you cost your company. That is, it is the amount that the company spends –directly or indirectly – because of employing you.

Example

Let’s understand this using a simple example. Say your basic is Rs. 15,000 per month, DA is Rs. 10,000 per month, you get conveyance allowance of Rs. 800 per month, and you get HRA of Rs. 4,500 per month. So, your package so far is Rs. 3,63,600 per year.

Now let’s look at some of the other components of your CTC pay – the parts that inflate your CTC package but may not be actually given to you!

Company’s contribution to Provident Fund (PF)

It is mandatory for you to contribute 12% of your basic towards provident fund (PF). Your employer makes an equal contribution (12% of your basic) to your PF account.

So, although this amount is not given out to you every month, for your company, it is an expense that it incurs on you every month! Therefore, this forms a part of your CTC pay.

Example

12% of your basic is Rs. 1,800 per month. That is, Rs. 21,600 per annum. Your CTC package becomes Rs. 3,85,200.

Reimbursements

Various reimbursements that you get from your company can also form a part of your CTC package.

This includes reimbursement of:

  • Medical bills
  • Phone bills
  • Magazine subscriptions
  • Book purchases, etc.

Example

Say you get reimbursement of medical bills of upto Rs. 15,000. So, your CTC package becomes Rs. 4,00,200.

Life Insurance and Health insurance

Most respectable employers provide free health insurance cover to their employees and their dependents. Some companies also provide life insurance for their employees free of cost.

The premium amounts paid for such insurance on your behalf can be included in your CTC salary.

Example

Say you get a health insurance cover of Rs. 1 Lakh for yourself and your family. The premium for this is Rs. 2,000. Thus, your CTC package becomes Rs. 4,02,200.

Medical Facilities

Many companies have in-house health centers, hospitals or other health care facilities where medical care is provided free of cost to employees.

Companies work out a per-employee cost for such facilities, and can include that in your CTC pay package.

Transport Facilities

Many companies provide free transport facility to their employees from their place of work to the job location.

The cost of such transportation can be added to your CTC package.

Subsidized Meals

Many companies run canteens or cafeterias for their employees, which provide subsidised meals to the employees. Such subsidy can be included in your cost to company package.

Example

Let’s say your company provides you lunch for Rs. 10, and the actual cost of that lunch is Rs. 25. Thus, there is a subsidy of Rs. 15 per meal.

For 21 working days in a month, this is Rs. 315. Or, Rs. 3,780 per year. Thus, your CTC package becomes Rs. 4,05,980.

The components of your CTC salary sound reasonable so far, right? After all, this is the money that you get in one form or the other.

 

About CA Karishma

I am a Chartered Accountant by profession and an avid teacher. Writing is my hobby and this blog is a platform to share knowledge and interact with prospective Chartered Accountants. I locate my work at the intersection of Chartered accountancy & education. I teach among others, Taxation at Tapasya Academy for CA, one of the premier institute for Chartered Accountancy course in Andhra Pradesh.

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2 comments

  1. True.. Nice article.. 🙂

  2. s very useful to every employee

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