These expenses can vary between organizations, but a typical CTC structure comprises:
1. Base Salary: The fundamental component of an employee’s compensation, representing the fixed amount received regularly, whether monthly or annually.
2. Bonuses and Incentives: Performance-based bonuses, incentives, or commissions that employees may be entitled to receive.
3. Benefits: Encompassing various perks like health insurance, retirement contributions, allowances, and other offerings provided by the employer.
4. Statutory Contributions: Employer contributions towards statutory obligations such as provident fund (PF), employee state insurance (ESI), and other government-mandated social security programs.
5. Stock Options: Equity-based compensation like stock options or equity grants, particularly prevalent in startups or companies offering such incentives.
6. Allowances: Different allowances like housing, transport, meal, etc., which are factored into the CTC.
7. Employee Provident Fund (EPF): The employer’s contribution to the EPF, a retirement savings scheme, included in the CTC.
8. Gratuity: If the organization provides a gratuity fund for employees, this liability may be part of the CTC.
9. Other Perks: Non-monetary benefits or perquisites such as company cars, mobile phones, or club memberships may also contribute to the CTC.
How do you Calculate CTC?
1. Determine your basic salary:
Calculate the basic salary, which forms the foundation of CTC. This excludes bonuses or allowances and constitutes a significant portion of the take-home salary.
Basic salary = Gross salary – all allowances
2. Find out house rent allowance:
Consider the house rent allowance, often tax-free, provided by companies to assist employees in meeting rental expenses.
3. Find your dearness allowance:
Include the dearness allowance, a percentage of the basic salary aimed at offsetting inflation impact, which may vary based on location.
4. Determine medical and conveyance allowances:
Account for medical allowance for medical expenses and conveyance allowance for travel expenses to and from work.
5. Find out leave travel and other allowances:
Include leave travel allowance, eligible for tax exemption, and other taxable allowances like servant allowance or meal benefits.
6. Add incentives or bonuses:
Consider incentives or bonuses offered by the employer based on performance objectives, whether casual or structured.
7. Deduct employee provident fund:
Deduct the employee’s contribution to the provident fund, which is a retirement benefits scheme with contributions from both the employee and employer.
8. Deduct professional and income tax:
Consider deductions for professional tax, varying based on state regulations, and income tax deducted at source by the employer.
9. Find out gratuity:
Account for gratuity, a token of appreciation provided by the employer upon an employee’s departure after a set tenure of service.
10. Use different formulas to calculate CTC:
Calculate CTC using formulas such as:
CTC = Gross salary + gratuity + PF
CTC = Basic salary + benefits + PF
Calculate gross salary as the sum of basic salary, house rent allowance, and additional allowances.
Calculate net salary as gross salary minus professional tax, provident fund deductions, and income tax.
Example of CTC Calculation
You can consider the following example to help calculate your CTC and its different components:
Suppose the basic salary of an employee is ₹50,000. The employer pays an additional ₹5,000 for health insurance and the employee contributes 12% to EPF. Then you can determine the CTC with the help of the following formula:
CTC = basic salary + benefits + PF
CTC of employee = ₹50,000 + ₹5,000 + 12% of ₹50,000 = ₹61,000
Frequently Asked Questions Related To CTC
Is the cost-to-company and take-home salary different from each other?
How many types of benefits are there in the CTC?
There are the following two types of benefits in the CTC:
Direct benefits: Employees receive direct benefits every month as a part of their take-home salary.
Indirect benefits: Indirect benefits are also called perquisites. These benefits get added to the monetary value of employees’ CTC and come at the expense of the company.
