Know Your CTC
CTC refers to "Cost to the Company". It refers to the entire annual expense the company has to spend to retain you as an employee. CTC stands for the annual total expense of an employee to a company. It refers to an employee's total salary, which is split between numerous incentives and perks, which might or might not be taxable at the company's disposal.
In India, the CTC is separated into three basic groups, namely-Direct benefits, indirect benefits, and saving contributions.
Direct benefits are paid to or on behalf of the employee. Among them are:
1. CTC Compensation: The CTC compensation is equal to the gross wage. It is the amount given to an employee prior to taxes or other deductions. The remaining direct benefits are various allowances that businesses may grant to employees as an additional benefit to their base compensation
2. Allowance for Special/City Compensation: This is a set amount that is paid to all workers who work in the same city. It's based on a proportion of the employee's base wage.
3. Incentive and Bonus Pay: The extra incentives or rewards to encourage staff to reach certain performance goals.
4. Dearness Allowance: The Dearness Allowance is a payment made by some companies to reimburse employees for spikes in inflation and living costs
5. Medical Benefits: If applicable, the CTC also consists of the employer's cost of providing health insurance to the employee, his or her children, and parents.
Benefits that an employee receives without having to pay for them (also known as Perquisites in legal Indian government language) are known as indirect benefits. These are paid by the firm, but because they are a corporate expenditure, they are included in the monetary value of an employee's CTC. These include:
1. Transport Allowance or Conveyance: This stipend helps workers cover the costs of getting to and from work and home. This form of stipend is normally only given if the company does not supply any other mode of transportation.
2. Travel Allowance on Leave: This stipend covers travel expenses for workers in India
3. Allowance for House Rent: If you pay your own rent in India, your employer could provide you an allowance for it.
4. Telephone allowance: This allowance might cover the cost of a house or mobile phone service, as well as a phone-based broadband internet connection.
5. Costs of Health Care: Costs of life insurance supplied to the employee, as well as any premiums paid for health insurance, should be evaluated. Dental and vision expenditures may be covered as well.
6. Taxis for Business Travel: Employers may provide coupons or compensate employees for the cost of cab rides to and from work.
7. Subsidized Food: Some businesses provide free lunch or snacks to their workers at work, or they offer meal coupons. When estimating the overall cost of employment, these additional charges should be factored in.
8. Employees Loans: In India, certain banks offer discounted automobile and housing loans to workers. The employee's CTC includes the difference between the market and subsidized interest rates.
Employee retirement contributions made by the employer are a part of this.
1. Superannuation: Employers contribute a certain amount of money to the employee's retirement account under this retirement plan. When the person retires or leaves the company, they can access their contributions.
2. Provident fund: The company contributes a certain proportion of the employee's income to a Provident Fund account under this arrangement. In addition, the employee contributes to the fund.
3. Gratuity: Indian law mandates a gratuity of little about 5% of the employee's base wage. Before five years, these monies cannot be withdrawn. The employee forfeits their gratuity money if they quit the firm before five years.
Calculation of CTC
The formula to calculate CTC is as follows:
CTC = Direct Benefits + Indirect Benefits + future savings + Deductions made by the employer because of voluntary contributions of the employee but paid by the employer.
Before any tax deductions, gross salary is computed by combining an employee's base income and allowances. Bonuses, overtime, holiday pay, and other elements.
Gross salary formula
Gross salary = Basic salary + HRA + Other Allowances
Take-home salary = CTC – Indirect benefits (including professional tax) – Future savings – voluntary contributions of employee paid by the employer – TDS
1. The discrepancy between the CTC and the take-home wage is attributable to non-monetary components, future savings, employer-paid voluntary contributions, and TDS (income tax).
2. These are the additional advantages that a firm provides to its employees that are taken from the take-home pay
3. TDS (tax-deductible at source), which is an obligatory deduction under the law, widens the difference between the CTC and take-home wage. The amount deposited to your bank account on a monthly basis is your take-home salary.