What is CTC in Salary and How is Basic Calculated?

CTC and Basic

What is CTC in the salary package with an example?

CTC means Cost To Company. The total cost that a company would incur, on an employee, in a year. Per month salary and other benefits that the company pays an employee, are actually cost to the company. CTC package is a term often used by private sector Indian companies while making an offer of employment.

CTC contains all monetary and non-monetary amounts spent on an employee. All the below mentioned are a part of the in-hand salary, and therefore, are a part of the CTC pay as well.

They are:

  • Basic
  • Dearness Allowance (DA)
  • Incentives or bonuses
  • Conveyance allowance
  • House Rent Allowance (HRA)
  • Medical allowance
  • Leave Travel Allowance or Concession (LTA / LTC)
  • Vehicle Allowance
  • Telephone / Mobile Phone Allowance
  • Special Allowance

A major part of CTC comprises of compulsory deductibles. These include deductions for provident fund, medical insurance, etc. They form a part of the compensation structure but doesn’t get them as a part of an in-hand salary. But it definitely increases the CTC.

CTC = Direct Benefits + Indirect Benefits + Savings Contributions

  • Direct Benefits refer to the amount paid to the employee monthly by the employer which forms part of his/her take-home or net salary and is subject to government taxes.
  • Indirect Benefits refer to the benefits that employees enjoy without paying for them. The company pays them on behalf of the employee but adds these expenses to the employee’s CTC as it is an expense from the company’s point of view.
  • Savings contribution refers to the monetary value added to the employee’s CTC example EPF.

Basic Salary – It is the amount paid to an employee before any extras are added or taken off, such as reductions because of salary sacrifice schemes or an increase due to overtime or a bonus.

Basic Salary Tax Liability – Basic salary is always taxable and should, therefore, not be more than 40% of the CTC. However, it should also not be kept too low since it will then result in a reduction in the other constituents of the salary. Usually, employees at a junior level will have a higher amount of basic salary compared to senior-level employees. If an employee has a high basic salary, he or she will have to pay tax on it.

How to calculate CTC from basic salary

Description Component of Salary (Per Annum) Amount
Basic Salary Basic Salary 480,000
Allowances Dearness Allowance 48,000
House Rent Allowance 96,000
Conveyance Allowance 12,000
Entertainment Allowance 12,000
Overtime Allowance 12,000
Medical Reimbursements 15,000
Gross Salary 6,75,000
Benefits vary from company to company Medical Insurance 2000
Provident Fund (12% of Basic) 57,600 (12% of 4,80,000)
Laptop 50,000
Total Benefits 109600
Cost to Company Cost to Company = Gross Salary + Benefits 6,75,000 + 109600 = 7,84,600

Note: salary structure varies from one company to another



What are TRACES?

Traces Expanded abbreviation – TDS reconciliation analysis and correction enabling system It is a utility provided by the Income Tax Department for a Taxpayer and

Read article