What is CTC in India?
CTC means Cost To Company. It is a term, which tells the total cost that a company would incur, on you, as an employee in a year.
The per month salary and other benefits (called perquisites in technical language) that your company pays you, are actually cost for them and hence the name. CTC package is a term often used by private sector Indian and South Indian companies while making an offer of employment.
The gross salary that you receive (before income tax and other deductions) is what is known as Cost To Company salary.
The break up of CTC package would talk about the basic salary, HRA (House rent allowance) and other such allowances. Please note that CTC contains all monetary and non-monetary amount spent on an employee.
What is CTC salary, What is CTC package and What is CTC in resume are some of the questions that we receive regularly from our guests. We are going to answer all of them in this article.
CTC in resume is generally asked to be filled in, to help the prospective employer know your current total gross salary (including any cash or non cash benefits).
What is Net Salary – Take home pay – in-hand salary?
Take home pay is what you actually receive at the end of month or salary period. The in-hand figure is calculated after deducting income tax (TDS) and other deductions as per company policies.
You can calculate your take home pay in India using this online calculator.
Explore more cost to company samples here.
What is included in a CTC?
As a general rule, the CTC and take home pay can be defined as:
CTC = Direct benefits + Indirect benefits + Saving Contributions
Take Home pay = Direct Benefits – Income tax – Employee PF – Other deductions, if any
|Direct Benefits||Indirect Benefits*||Saving Contributions*|
|Basic Salary||Interest free loans, if any||Superannuation benefits|
|Dearness Allowance (DA)||Food Coupons / Subsidized meals||Employer Provident fund|
|Conveyance allowance||Company Leased Accomodation||Gratuity|
|House Rent Allowance (HRA)||Medical/Life Insurance premiums paid by employer|
|Medical allowance||Income tax savings|
|Leave Travel Allowance (LTA)||Office Space Rent|
|Telephone / Mobile Phone Allowance|
|Incentives or bonuses|
|Special / City Compensatory allowance etc.|
|* Monetary value added to CTC|
- Direct benefits
Paid to you monthly and form part of your take home (in-hand salary) after deducting income tax plus any additional state taxes.
- Indirect Benefits
Benefits that an employee enjoys without paying for them. Your company takes care of them but add their monetary value to your CTC.
Off-course it is an expense for the company and hence, could be added to CTC.
Here is the most common benefits (also called Perquisites in legal Indian government terms) that may form part of your CTC.
- Interest free loans, if any
If your company is providing you interest free loans for buying a car or a house or any other need, they are definitely NOT doing a charity.
They usually add the monetary value of the interest benefit that you will get out of NOT paying it, to your CTC.
Usually, banking companies like ICICI allow their employees to get car or home loans at highly subsidized rates and then add the amount equal to the difference between the market and subsidized interest rate to employee’s CTC.
If you don’t take the loan, you won’t get this benefit, but it is anyway added to your virtual CTC. Be careful while accepting the offer letter.
NOTE: The differential amount of benefit i.e. the money you save with subsidized rate of interest is taxable. It depends on your company policy, if they bear the tax or pass it on to you, as an employee.
- Food Coupons / Subsidized meals
Many MNC employers offer free lunch and evening snacks at workplace.
Do you think these are FREE? No way! Dig deeper in your CTC letter and you would certainly find them in the list.
This reminds me of one proverb “No lunch is FREE in this world”.
On the other hand, the meal vouchers (or food coupons) help you save income tax too.
NOTE: Normally, you won’t get this amount in-hand even if you opt-out of eating in their cafeteria. This free lunch benefit is mostly non-cash-able.
- Company Leased Accommodation (CLA)
Your employer might provide you with company paid rent to the landlord directly, saving you from the tension of finding a home and negotiating on rent deals.
The monetary value of CLA is added to your CTC, which is normally the rent and furniture cost.
No prizes for guessing that the benefit is NOT tax free.
Company leased accommodation is counted as a perquisite and is taxable.
- Medical and Life Insurance premiums paid by company
Group medical and life insurance policies by your employer give you much better and comprehensive cover over the individual ones.
But they do come at a cost to your company and it, obviously is included in your CTC.
Since, the money is still flowing from your pocket (even though you never paid it directly), you do get some tax benefits.
You will never be asked to pay premium but in reality, you would have paid it as part of the group.
- Free Cabs for Office commute
You would be lured to a new job with the option of FREE transportation to office. Well, it is not free even if it is subsidized.
Most employer’s would add it to your CTC.
Free or subsidized transport is still taxable either as FBT (employer pays tax) or as your income tax if the employer passes it on to you.
- Income tax savings
Sometimes companies offer you some benefits which are tax free for you, but are taxable for them.
For example, if you receive per diem allowances, they are subjected to FBT (Fringe benefit tax). It is supposed to paid by your employer and not you.
Some companies do add the value of this tax, in your CTC, that you as an employee would be liable to pay, if your company does not pay it.
This again forms part of your CTC even though you will never receive this amount in your pocket.
FBT tax saving added to CTC is a virtual amount that you will never receive in your hand.
- Office Space Rent
This is the most weird component, but a real one. You must have heard about FAT pay packages that people graduating from IIM (Indian Institute Of Management) or IIT (Indian Institute of technology) receive.
They run into several lakhs of rupees at the fresher level itself.
If you carefully look at the break-up of CTC, most of them do include the work cubicle rent.
For example, if the company is spending INR 7000 per month on the cubicle that you would sit in at your work location, they would add the yearly cost of this in your CTC.
This simply means that INR 84,000 (12*7000) will form part of your pay package even though you will never get it!
Your work location rent is also part of FAT CTC packages.
- Interest free loans, if any
- Saving Contributions
Payments made to your long term savings account by your employer. They do not form part of your monthly take home but belong to you and you may or may not get them in long term.
- Superannuation Benefits
A pre-defined amount is contributed every month in your superannuation account, mostly offered by multinational companies as a way of saving for retirement.
You can withdraw it after you retire or at the time of leaving the organization.
Most of the companies do not directly give you cash on separation though. You get an option of converting the amount into some kind of insurance policy.
- Employer Provident fund Contribution
Your employer contributes about 12% of basic salary every month to your Provident fund account.
As per the Indian income tax law, employer is only bound to pay 12% the at-least INR 15000, fit he real basic is more than this amount.
Most of them in real world do contribute the 12% of real basic though. This is primarily the reason that employers try to keep the Basic salary amount as low as possible.
This amount keeps accumulating in your PF account and you can withdraw it as cash, at the time of leaving the company.
Check out the difference between Employer PF, Employee PF (Called VPF) and PPF for clarity.
Employer PF is part of CTC but does not show up on your Salary Slip. If it NOT counted as part of your earnings and hence is not taxed.
It is paid at the rate of 4.81% of total yearly basic salary per year, as per Indian tax law, with a time limit of 5 years attached to it.
If you leave the organization anytime before 5 years, you cannot claim your Gratuity accumulation. You lose it.
Make sure you serve a company for at least 5 years to enjoy your Gratuity.
- Superannuation Benefits
Difference between in hand salary and CTC?
You would have seen this many times that even if your CTC package (CTC) is 6 lakhs per annum and hence monthly income INR 50,000, you only receive about INR 40-42,000 as your monthly take home pay.
This is because CTC is actually a sum total of various components as mentioned above and not all of them are given to you on monthly basis in your hand.
Some of them like Gratuity, Employer provident fund and Superannuation benefits are added to your long term savings account but do not form part of monthly take home pay.
The other reason of reduced take-home pay is the income tax that is deducted at source (called TDS) itself i.e. by your employer.
How to understand CTC to find Take Home Pay for job?
You should evaluate your CTC or package carefully and make sure that you understand each and every element correctly.
Use Take Home Salary Calculator – India to make a decision of accepting the new job offer or not.
Do not just look at the figure of CTC as there could many components which may be misleading and may NOT form part of your monthly take home.
Let me know your thoughts and suggestions in the comments.