Everyone has come across the word CTC on a daily basis, listening to peers, relatives, or someone else frequently mention it. But what is CTC? 

Cost To Company, or CTC, is the total cost that an organisation spends on its employees for their services. This includes salary, benefits, bonuses, and any other related expenses. Understanding CTC is important so that an employee can assess his/her compensation structure. 

What Is CTC In Salary?

The Cost to Company or CTC is the total cost that an employer incurs to hire and retain an employee for a particular year. This includes salary, benefits, allowances, bonuses, contributions to the provident fund, and other contributions. In other words, CTC is the compensation that an employee receives for the services rendered. 

However, the CTC is not the exact amount that the employee receives as a take-home salary. Various deductions and contributions are removed from the CTC while arriving at the take-home amount.

Structure And Key Components Of CTC

Your CTC has several components, including salary, benefits, allowances, and bonuses. Let's look in to the details at what is included in the CTC.

Fixed Components

Basic Salary

It is the base salary that an employee earns, and it does not include any allowance or bonus. 

Dearness Allowance

The Dearness Allowance is given to the employee as an adjustment to the cost of living with an aim to counter inflation. It is only given to government employees.  

House Rent Allowance

This allowance covers the employee's housing costs. It is a tax-deductible allowance for those who live in rented accommodation. 

Variable And Performance-Linked Bonus

Performance Bonus

This is the payment given to the employee based on the performance for the year.

Sales Commission

This is an incentive paid to sales representatives based on the revenue they generate monthly.

Profit Sharing

This is the distribution of the company’s profits among the employees. 

Other Benefits

Provident Fund

This is a retirement benefit where both the employer and employee contribute a percentage of the basic salary every month. The contribution made by both parties forms part of CTC. 

Health Insurance

Some employers offer health insurance for the employee and family to cover costs such as medical expenses incurred by the employee. The insurance premium paid by the employee is included in the CTC.

Medical Allowance

This is the amount paid to the employee to cover medical expenses such as medical bills.

Deductions From CTC

Professional Tax

This is deducted from the CTC of the employee depending on the state of employment. 

Income Tax

Based on the applicable slab rates and estimated tax liability, a certain amount is deducted from the employee towards income tax payment. This is called Tax Deducted at Source or TDS.

Other Contribution

All contributions made by the employee towards PF, NPS etc will be deducted from the CTC of the employee. 

How To Calculate CTC In Salary?

CTC is the total cost that the employer has to incur i.e., the total expense incurred for an employee. It is calculated by adding all the expenses such as salary, benefits, bonuses, allowances etc., that the employer incurs. 

CTC = Gross Salary + Benefits + Other Costs

For example, If the Gross salary is Rs. 5 lakhs, the PF contribution is Rs. 80,000 and the Bonus is Rs. 20,000 then the total CTC will be Rs. 6 lakhs (Rs. 5,00,000 + Rs. 80,000 + Rs. 20,000). 

CTC Format And Example

Let us understand the format of CTC with an example:

Mr. Anban is a Manager in ABC Pvt. Ltd. He gets a basic salary of Rs 15 lakhs, HRA of Rs. 2 lakhs, Allowances of Rs. 50,000 and a Performance bonus of Rs. 1.5 lakhs. He makes a EPF contribution of Rs 2 lakhs. His total CTC will be as follows:

Therefore, Mr Anban's total CTC for the year will be Rs. 21 Lakhs. However, this will not be his in-hand salary. His in-hand salary will be less and subject to deductions and will be less. 

CTC vs Gross Salary vs In-Hand Salary 

In the above example, we understood how CTC is calculated and determined Mr. Anban’s CTC to be Rs. 21 lakhs. But what is his in-hand salary?

To determine Mr. Anban’s in-hand salary we should first find out his Gross Salary which will be as follows:

We will now determine his tax liability to calculate his in-hand salary. Under the new tax regime, his tax liability for FY 2025-26 will be Rs. 2,14,500. 

Use our Income Tax Calculator to determine your Tax Liability!

Therefore, the In-hand salary of Mr. Anban will be,

However, If Mr. Anban decides to decrease his EPF Contribution to Rs. 1 lakhs then his Gross Salary and In-Hand Salary will be as follows:

Therefore, the In-Hand Salary depends on the deductions and contributions made by the employee, which will have a direct impact on the gross salary. 

Final Word

Planning deductions and contributions from CTC is very important. A higher contribution will result in a lower in-hand, and a lesser contribution will result in a higher in-hand. However, it depends on the employee's investment capacity. By understanding CTC and its structure, employees should be able to understand how their salary is structured and help them plan accordingly.