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Meaning & Definition

Cost to Company (CTC)

Cost to Company (CTC) is the yearly expenditure that a company spends on an employee. Each employee spend depends on their salary and variable. CTC is calculated by adding salary and additional benefits that an employee receives such as EPF, gratuity, house allowance, food coupons, medical insurance, travel expense and so on. CTC in colloquial terms is the cost an employer bears to hire and sustain its employees.

Formula: CTC = Gross Salary + Benefits.

If an employee's salary is ₹40,000 and the company pays an additional ₹5,000 for their health insurance, the CTC is ₹45,000. Employees may not directly receive the CTC amount as cash.

Frequently Asked Questions (FAQ's)

  1. What is Cost to Company (CTC) and gross salary?

    Gross salary is the aggregate amount of compensation discharged or spent by an employer or company towards the employment of an employee, before any deductions. The aggregate compensation would be the Cost to Company or CTC to employees.

  2. How is Cost to Company (CTC) calculated in salary?

    CTC = Direct Benefits + Indirect Benefits + Savings Contributions

    • Direct Benefits: This refers to the employee's take-home or net salary or the amount paid to the employee monthly by the employer and is subject to government taxes.
    • Indirect Benefits: These refer to the benefits that employees enjoy without paying for them. While the company pays them on behalf of the employee they are added to the employee’s CTC since it is an expense from the company’s point of view.
    • Savings Contribution: This refers to the monetary value added to the employee’s CTC, for eg: EPF.
  3. What does Cost to Company (CTC) include?

    CTC contains all the monetary and non-monetary amounts spent on an employee. These include:

    • Basic Pay
    • 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
  4. What is expected Cost to Company (CTC)?

    Expected CTC is a term used to understand what a candidate is expecting from the organisation in terms of his/her CTC.

  5. Is Cost to Company (CTC) the same as take-home salary?

    Take-home pay is the net amount of income received by the employee after the deduction of taxes, benefits, and other voluntary contributions from their paycheck.

    Whereas CTC or Cost to Company is the sum or total amount a company is spending on an employee in a year. It includes the Take Home Salary along-with other benefits and allowances.

  6. What is Cost to Company (CTC) breakup?

    The CTC is made up of several different components including the take home pay, benefits, allowances, and more. Here are the crucial components of the CTC break-up:

    1. Basic Salary: This is the largest part of the salary structure usually comprising 40-45% of CTC.
    2. HRA: The employer provides house Rent Allowance to the employee to meet accommodation expenses in the city of employment.
    3. Medical Allowance: It is a fixed amount paid by the employer to the employee irrespective of the actual expenses incurred for medical treatment.
    4. Employee Contribution to EPF: It is a contribution of 12% of basic salary along with dearness allowance (if any) and is deposited in the employee’s EPF account.
  7. What are the Cost to Company (CTC) Benefits in India?

    There are two kinds of benefits, direct and indirect:

    1. Direct Benefits: These are paid to the employee monthly and form part of their take-home pay after deducting income tax plus any additional state taxes.

    2. Indirect Benefits: Benefits (also called Perquisites in legal Indian government terms) that an employee enjoys without paying for them. The company takes care of these however they are added to the monetary value to an employees CTC since it is an expense for the company.
  8. How to make the most of Cost to Company (CTC) being offered?

    When negotiating, make sure to try and increase the direct benefits component as much as possible. Here are a few ways:

    1. Ask for conveyance allowances rather than a pick-up or drop facility, since this is tax -free.
    2. Ask for food allowance and the option to convert your subsidized food bills to it.
    3. In case the company is offering ESI benefits, ask if the health cover can be converted into into medical reimbursements.
    4. Ask for health cover for family members.
  9. What is the difference between CTC and in hand salary?

    In-hand salary is the net amount of income received by the employee after the deduction of taxes, benefits, and other voluntary contributions from their paycheck.

    Whereas CTC or Cost to Company is the sum or total amount a company is spending on an employee in a year. It includes the In-hand salary along-with other benefits and allowances.

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