Cost to company
Cost to Company (CTC) is a term for the total salary package of an employee used in some countries such as India and South Africa. It indicates the total amount of expenses an employer (organization) is spending on an employee in a single year. CTC is calculated by adding the salary of an employee to the cost of all additional benefits an employee receives during the service period. If an employee's salary is ₹50,000, then the company pays an additional ₹5,000 for their health insurance, the CTC is ₹55,000.
Difference between CTC and Pay Slip
There are many components to CTC; employees may not directly receive all of their expected entitlements. In a hypothetical case, an employee might find that their maximum entitled limit is only ₹22,491 a month, even though the posted CTC offered was ₹30,150. The CTC represents money set aside to pay salary to an employee with the addition of money for the employer's contribution to a provident fund. While this amount is technically part of the CTC, it is not directly included in the employee's salary.
The same approach is applicable for the company's contribution towards employees' medical insurance as well.
Income tax and professional tax are also deducted from an employee's CTC. He would get ₹22,491 only if he achieved the maximum limit of overtime and upon submission of medical bills worth ₹15,000.
Hypothetical break-up of CTC and tax liability is given below:
| Component of salary | Amount (₹) | Taxable amount |
|---|---|---|
| Basic salary | 2,40,000 | 2,40,000 |
| House rent allowance | 60,000 | 36,000 |
| Conveyance allowance | 8,000 | 0 |
| Entertainment allowance | 6,000 | 6,000 |
| Overtime allowance | 6,000 | 6,000 |
| Medical Reimbursements | 10,000 | 0 |
| Gross salary | 3,30,000 | 2,88,000 |
| Medical insurance | 3,000 | |
| PF (12% of basic salary) | 28,800 | |
| Total benefit | 31,800 | |
| CTC = gross salary + benefit | 3,61,800 |
Break up of take home salary:
| Deductions/take home salary | Amount |
|---|---|
| Tax (10% of taxable amount) | 28,800 |
| Employee provident fund (12% of basic salary) | 28,800 |
| Professional tax | 2,500 |
| Total deduction | 60,100 |
| Gross salary | 3,30,000 |
| Net salary (gross - deduction) | 2,69,900 |
| Monthly take home salary | 22,491 |
Conclusion
Take-home salary can also be increased with the help of proper tax planning. If a person invests ₹1.5 lakh in tax saving instruments under Section 80C such as PPF, Equity-Linked Saving Scheme (ELSS) etc., then he/she can save tax. Although this would not alter the CTC, the take home salary will be increased.