Many of us have come across the words like Cost to Company (CTC), Gross Earnings, take home salary, net payout etc. while joining a company or If you are an entrepreneur, you must have quoted the same to your employee.
There has always been a difference between the CTC and the take home away salary, which takes an individual to a state of confusion.
In this article we will be covering the following topics:
1. What is Cost to company (CTC)
2. What are the components of CTC?
3. Difference between CTC and take home salary
4. How to calculate your Net payout or take home salary?
Cost to the company
CTC or Gross Earnings are the synonyms and can be interchanged. CTC basically means the amount that the company is going to spend upon you or the entire amount which the company is willing to pay you in terms of your basic salary + Medical Insurance + Shuttle facility + Variable Bonus + Free meals + Overtime allowance etc.
So in local language
CTC = Gross Salary + Benefits (non-monetary Benefits)
For example, the company has a medical cover for all their employees and pays Rs 5000 for each employee. In this case this Rs 5000 will form the part of the CTC.
Components of Cost to the company
CTC includes both monetary and non-monetary components.
The major components of the CTC are:
1. Basic Salary: This forms the major component of your salary. Normally basic pay is 40%-50% of your total CTC depending upon the company policy
2. House Rent Allowance (HRA): In your CTC, this amount is majorly 40%-50% of your Basic Pay
3. Other Allowance: It includes allowance like medical allowance, entertainment allowance, leave travel allowance, special allowance as stated in Income Tax Act
4. Bonus: It could be both fixed and variable (which is based on your performance during the period)
5. Reimbursements: Sometimes company makes reimbursements also the part of CTC like fuel reimbursement, Telephone reimbursement etc.
Non-monetary Components/ Benefits/Deductibles
1. Food Coupons
2. Medical Insurance
3. Cab facility
4. Provident Fund (Employer and Employee’s share)
5. Professional Tax
Difference between CTC and take home salary
The difference between the CTC and take home salary arises mainly due to Non-monetary components, which are basically the other benefits company has given to its employee and are deducted while calculating the take away salary.
Besides the above the gap between the CTC and take home salary comes from TDS (Tax deductible at source) which is a mandatory deduction as per the statue. So, take home salary is the amount which get credited to your bank account at the end of each month J
CTC is a broader term from which take home salary derives or you can say CTC is more inflated term in comparison to the take home salary.
How to calculate your Net payout or take home salary?
|House Rent Allowance||1,20,000|
|(Employer and Employee’s Share)|
|Cost to company||6,00,000|
In this case, take home salary would be
|Cost to company||6,00,000|
|Take home salary||5,45,800|
*Food coupons are credited to the employees card like Sodexo/ Zeta Card which can be redeemed at restaurants, super markets etc.
Take home salary = CTC – Non monetary benefits – Professional tax – TDS
So, next time while negotiating for your salary with your prospective employer, keep the above calculation in mind and rock the show.
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