Cost-to-company or CTC is the total salary package an employee receives from the company they work in. It is the total amount of expenses an employer or organisation spends on an employee in a year.

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The total salary package includes monthly components such as basic pay, various allowances, reimbursements, and annual components including gratuity, annual variable pay, annual bonuses, among others.

The breakup is generally in the form of a balance sheet. It can be confusing for new employees to decipher all the components and what they really mean.

CTC is designed according to respective company's policies. The monthly and annual components can be different for each employer.

Here's a breakup of the broad terms that are generally found in every CTC:

Gross Salary

Basic Pay/Basic Salary: This is the amount which shows the basic income of the employee and it is taxable. It is the actual pay one receives for providing services to the firm and depends on the employee’s designation as well as the industry they are working in.

Allowances: The allowances a company provides to its employees are based on their policies. This is in addition to the basic salary. There are several allowances which comprise a CTC. Here's a list:

HRA or House Rent Allowance: If an employee is staying in a rented accommodation, they can avail the HRA by furnishing relevant documents.

Leave Travel Allowance (LTA): If an employee is required to travel on the job, the company bears their travel expenses.

Conveyance Allowance: Most firms take up the expenditure of their employees' conveyance.

Dearness Allowance or DA: This is a living allowance paid to employees to bear the effects of inflation. However, DA is only for government employees, public sector employees, and pensioners.

Some firms also provide medical allowance, incentives, among others.

Reimbursements: If an employee has paid for the firm for an expense the firm claimed to bear — usually mentioned under one of the allowances — the employee can provide the required documents and claim their expenses.

Provident Fund (PF)

Provident fund is an investment both by the employer and the employee every month. The accumulated amount will be the paid in a lump sum to the employee at the time of retirement. Twelve percent of the basic salary is contributed to the PF account.

Gratuity

This is the amount a firm gives to employees when they are leaving the company for the services they have rendered during the course of their employment.

In simple terms, CTC = Gross Salary + PF + Gratuity.

CTC differs from the take-home salary.

Normally, CTC is higher than the take-home pay. The difference is due to tax deductions which are not included in the CTC. The take-home pay, then, becomes the net amount after the deduction of taxes, benefits, and voluntary contributions from a paycheck.

Employees can save on the taxes, using tax-saving methods.

First Published:Jun 25, 2019 1:27 PM IST