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Cost To Company or CTC salary: Understanding and Calculation

What is Cost to Company or CTC salary? How is it calculated? If your CTC package is so high, why do you get so little in hand? This article explains it all.

Your company offered you a salary of Rs. 6 Lakhs per year. That means you should be getting Rs. 50,000 in hand every month. Even if you consider income tax, you should be getting about Rs. 40,000 in hand.

But you get only Rs. 32,000 in-hand every month! Why? Where did the promised money vanish? Is your company cheating you?

No! It is because the company promised you the salary as Cost to Company, or CTC.

So, what exactly is CTC?


The concept of Cost to Company (CTC)

Simply speaking, CTC is the amount that you cost your company. That is, it is the amount that the company spends – directly or indirectly – because of employing you.

Thus, it is the money given to you (your in-hand component), plus the money spent because of you.

You’ll understand this better while we discuss the various components of your CTC salary, so let’s jump into it right away! We will also use an example parallel to the discussion, so that you can understand the concept of CTC better.


Components of Cost to Company (CTC) Salary

In “Understanding components of your salary”, we saw the various components of your in-hand salary.

These 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

All the above are a part of your in-hand salary, and therefore, are a part of your CTC pay as well.


Let’s understand this using a simple example. Say your basic is Rs. 15,000 per month, DA is Rs. 10,000 per month, you get conveyance allowance of Rs. 800 per month, and you get HRA of Rs. 4,500 per month. So, your package so far is Rs. 3,63,600 per year.


Now let’s look at some of the other components of your CTC pay – the parts that inflate your CTC package but may not be actually given to you!


Company’s contribution to Provident Fund (PF)

It is mandatory for you to contribute 12% of your basic towards provident fund (PF). Your employer makes an equal contribution (12% of your basic) to your PF account.

(Please read “Provident Fund (PF) and Voluntary Provident Fund (VPF)” to know more about provident fund)

So, although this amount is not given out to you every month, for your company, it is an expense that it incurs on you every month! Therefore, this forms a part of your CTC pay.


12% of your basic is Rs. 1,800 per month. That is, Rs. 21,600 per annum. Your CTC package becomes Rs. 3,85,200.



Various reimbursements that you get from your company can also form a part of your CTC package.

This includes reimbursement of:

  • Medical bills
  • Phone bills
  • Magazine subscriptions
  • Book purchases, etc.


Say you get reimbursement of medical bills of upto Rs. 15,000. So, your CTC package becomes Rs. 4,00,200.


Life Insurance and Health insurance

Most respectable employers provide free health insurance cover to their employees and their dependents. Some companies also provide life insurance for their employees free of cost.

The premium amounts paid for such insurance on your behalf can be included in your CTC salary.


Say you get a health insurance cover of Rs. 1 Lakh for yourself and your family. The premium for this is Rs. 2,000. Thus, your CTC package becomes Rs. 4,02,200.


Medical Facilities

Many companies have in-house health centers, hospitals or other health care facilities where medical care is provided free of cost to employees.

Companies work out a per-employee cost for such facilities, and can include that in your CTC pay package.


Transport Facilities

Many companies provide free transport facility to their employees from their place of work to the job location.

The cost of such transportation can be added to your CTC package.


Subsidized Meals

Many companies run canteens or cafeterias for their employees, which provide subsidised meals to the employees. Such subsidy can be included in your cost to company package.


Let’s say your company provides you lunch for Rs. 10, and the actual cost of that lunch is Rs. 25. Thus, there is a subsidy of Rs. 15 per meal.

For 21 working days in a month, this is Rs. 315. Or, Rs. 3,780 per year. Thus, your CTC package becomes Rs. 4,05,980.


Taking it too far

The components of your CTC salary sound reasonable so far, right? After all, this is the money that you get in one form or the other.

But some companies take the concept of cost-to-company too far! Look at the following:


Office phone bill

The bill for the office phone that you use can be included in your CTC salary too.


Office space rent

Shocked? Its true! There are many companies – especially large investment banks – that include your office space rent in your CTC package!! Yes, it defies logic, but it is true!


Let’s say your office is in Churchgate in Mumbai. Your have a small cubicle, say 6 feet by 8 feet (48 square feet). Let’s say the going rate for rent for office space in that area is Rs. 200 per sq. ft. per month.

What is the cost of your cubicle in that case? Its Rs. 200 * 48 = Rs. 9,600 per month, or Rs. 1,15,200 per year.

When this is included in your CTC, your overall CTC package becomes Rs. 5,21,180!


A side note: Remember this when you read about the whopping, exorbitant salaries paid out to fresh management graduates (Like the IIM Ahmedabad MBAs)! Their large salaries might include the office space rent as well!!


A note on government salaries

We often hear people say that the salary of government employees is quite low.

Although there is truth in this, government salaries wouldn’t seem too less if we look at it from a “CTC” point of view.

When we talk about government salaries, we only talk about the “in-hand” component. But we forget that on a cost-to-company basis, it can be quite substantial.

What extras do government servants get? Here’s a sample list:

  • The 12% of basic that the government deposits in their PF accounts, just like private companies
  • Membership of government clubs or gymkhanas
  • Free stay at various circuit houses and government guest houses
  • Free telephone connection at home
  • Free car with driver
  • Reimbursement of newspaper bills
  • Free use of many libraries
  • In case of defense personnel (Army / Navy / Air Force), a huge subsidy on items bought from their “canteens” (like groceries, appliances, etc.)

When these things are taken into account and salaries of government employees is considered on a cost to company (CTC) basis, it won’t seem too less compared to the private sector!

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  1. Arthanareeswaran says:

    Explanation given above for CTC really wonderful, i am very clear now and i am in big confusion before reading this now i know what it means to be. Thanks for the brief explanation.

  2. Thanks…
    It cleared my confusion about CTC… :)

  3. Anonymous says:

    Thanks , it’s really good explaination!


  4. Your posts about the CTC components is very helpful. Need some clarification about the ideal fixed versus variable component. As you explained, a lot of companies will offer CTCs of 10-15 Lakhs but the basic is around 20-30K (about 20-25% of CTC) with the rest taken by allowances and variable components. Is that a good thing or can the package be customized ? Is there some ideal ratio that one should look for? Thanks.

  5. Anonymous says:

    Am impressed by your writing skills, details are very easy to understand. Keep up the good work, and Thanks a million to you for making this information available for people. God Bless

  6. John Wayne says:

    Explanation given above for CTC really wonderful, I am really impressed with the clarification narration and always welcome such forum.

  7. NDABAMPE says:

    I’ma member of inhouse PF in with my employer with a 100% contribution from me alone, that happened after i was transferred from the previous PF where there the setup was 50/50 and the company changed the pay package structure by adding the 50% of their contribution and stated that i’m earning a ctc salary.

    Why i’m confused is that the PF rules says that i’m not contributing but my employer does on my behalf however the 50% that i use to contribute is included in that 100% contribution.

    My Gross earning is the same as CTC package is that a CTC Salary?

    Please hulp this is confusing me’

  8. gr8 help !!
    made most of the doubts clear..
    thanks …keep it up..:)

  9. Suneet Jindal says:

    Hey,first i would like to thank you for such a wonderful job.
    This knowledge is really practical.
    I have a doubt. Whether this gratuity benefits also forms a component of CTC salary?
    Because as explained,it too costs the company,even thou very late during retirement or resignation of the employee.
    If yes,those who are not eligible on the grounds that they were unable to complete,say 5 years of job,why they are liable to pay for the gratuity amount to company,even thou they don’t recieve it finally..
    And if it is not a component of CTC salary,whether company pay it from its own pocket?
    Will be expecting your reply..

    • Yes gratuity for which the company pumps in certain % will form part of CTC. Even performance based bonus form part of CTC.

  10. I’ve a peculiar problem regarding a single premium life insurance of tenure 15 years bought by my employer on employee’s name 2 years back. Initial idea was to withdraw this facility if the employee resigns. But then they chose to extend the benefit beyond resignation, but at a proportionate price. In this scheme, I would need to pay the complete premium amount back to the company and the company would reimburse back proportionate amount every year till employee serves the company. Will this reimbursement be taxable? Is there a better idea in implementing the above?

  11. Sushanta Kumar Maitra says:

    CTC components described here is good one….. specially for the new joinees.

  12. Rahul Kulkarni says:

    Hi Raag,

    Thanks for this clear explaination – I am a fan of your website.

    Have a question: Many companies offer a flexible salary structure wherein one can decide how to split his total salary into various types of allowances and reimbursements to suit his/her need and avail tax savings. My company also offers this, with several “reimbursement” options. How are these reimbursements taxed? For instance, there is a head for car operating expenses for company leased vehicle. My company documentation states the following:

    “Currently, as per Income Tax Act, the company provided cars are valued as taxable perquisites in the hands of the employees at Rs. 1800/- per month if the cubic capacity of engine does not exceed 1.6 liters and Rs. 2400/- where cubic capacity of engine exceeds 1.6 liters.”

    I am not able to understand the tax implications of the above. Can you please help?

    Thanks in advance.

  13. your description about ctc is very very halpful

  14. Sujith Kumar says:

    Thank u very much……..

  15. Anonymous says:

    Hi Sujith,

    You are most welcome…

  16. really gud…and vry helpful

  17. Rajesh Pishe says:

    This is called White Collar Crime….

  18. Abhishek Kadiri says:

    Thank you very much!! In my offer letter it was mentioned something like this “3.25 lacs p.a CTC”..
    I was wondering what CTC was! Now I’ve got a clear idea
    of what it is!! :)
    I was happy that I’ll be getting around 27K per month! But unfortunately no :(
    Anyways thanks for enlightening me :)

  19. rajesh kamble says:

    dear sir ,
    I Got offer letter From hospital which detail i am giving below , i want to know its right or not.
    BASIC -13,000/-
    HRA – 6500/-
    Conveyance Benefits- 1500/-
    Educational Benefits – 2000/-
    City Compensatory Benefits -1000/-
    Additional Beneftis -565/-
    LTA – 3250/-
    gross salary —- 27815/-
    provident Fund (12 % of Basic – Employers Contribution-1560/-
    Gratuity – 625/-
    sub total —=== 2185/-

    cost of company 30,000/-
    provident Fund (12 % of Basic – Employees Contribution -1560/-
    professional Tax — 200/-
    sub total – 1760/-

    net payable – === 26055/-

    its good for me pls help me…. \


  20. Sudarshan Sharma says:

    what would be the Scale of Pay if my ctc for year is 3.45 lac

  21. Virendra Singh Aulakh says:

    your descriptions about CTC solve of many confusion ……
    Thanks a lot

  22. Satish Shenoy says:

    how does the company or an employer decide the component of basic salary in the overall salary structure? is there a certain %age of the total salary ?

  23. Sir,
    Still I have a doubt, when bonus and gratuity are comes under CTC, why don’t the leaves ( Cl’s, Pl/El’s, Sl’s) come under?

  24. to sathish shenoy ,ur basic will be 30% fom u salary per month and da also will be same30%

  25. bhai kime bhi smaj m koni aaya

  26. what would be the Scale of Pay if my ctc for year is 3,02,553.28 lac.
    And what is TTL1 & TTL2

  27. very good explanation, very nice ,thanks for the explain

    i m very happy t understand this


  28. i understand loan components like housing, vehicle etc., can also be included in CTC. Pls explain that also.

  29. thanks,,,,,,,,,,i understood ctc breifly

  30. If the CTC offered is 3.6 LPA then what is the in hand salary we can get every month

  31. santosh sinha says:

    dear sir,
    please provide me company total cost format(ctc).

  32. Venkateswaran says:

    Does CTC include Gratuity & ESI amounts?

  33. If the company is offering Rs.39 L CTC,what will be mine monthly salary which i get in my hand?

  34. Dear Sirs,
    I have a question. I have a CTC of 3.2lakhs PA. i get this divided into 13 so that my company pays me salary as 12months and 1month will be as Bonus. Now i want to know if CTC should be paid within 1year or they can take time to pay the last mentioned Bonus.

    Pls give your views.
    Thank you.

  35. Thanks Sir for the explanation..!

  36. shantikumarbansal says:

    Let my total salary package is rs 25000/- per month. please tell me my ctc

    Thanks with Regards

  37. hi rag its brilliant discription

  38. SUCHETA RAWAT says:

    Let my total salary package is rs 29000/- per month. please tell me my ctc

    Thanks with Regards

  39. gaurav sharma says:

    thanks for the information, it is really a satisfactory detailed info on CTC.

  40. bheem Shankar says:

    Thanks,It was a nice explanation for CTC.Really good.Everyone will understand easily and will satisfy with this information.

  41. Thanks a ton sir,.this really helped me out in letting me know at what stage I am..The dilemma of “My worth” got cleared with ur clear explanation..Once again,.thanks a ton..

  42. Meenal Vora says:

    really explained everything in detail….
    all my confusion got cleared…

  43. Krishan Singh says:

    Pleas let me now about CTC or provide me CTC Format in EXCAL Sheet.

  44. Thanks, this really help me. And i am also get the exact meaning of ctc.

  45. What About Gratuity part
    Can we include Gratuity in CTC and If yes and employee resigned before five years what to do with Gratuity amount deducted per month

  46. MANAS GOEL says:

    before that i really don’t no what exactly CTC is but from the above expiation ,now i can better understand the concept of CTC. the way you explained all the things is febulas .

  47. Thanx to u. I was very confused regarding this topic. Thanx again

  48. This will be very clear explain to all which they were working without knowing of the word ctc include me also.

  49. sandeep reddy says:

    very well explained..

  50. harjinder singh says:

    Very informative….Very good examples….It cleared the concepts of CTC. Thanks a lot.

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