Cost To Company (CTC) is the gross salary offered by a company to its employees. CTC was not a popular jargon of old India. The new generation companies, Multi National Companies (MNC) use this jargon quite often.
The employees will find it hard to digest the fact of getting a salary much lesser than CTC. Let’s analyze the reasons.
This can be explained through an example. Suppose Mr. Ramakanth is hired by a company for a salary (CTC) of Rs.18,00,000 per annum (Means monthly salary of Rs.150000); how much Take home salary he can get every month?
Let’s list out deductions from CTC
Income Tax (TDS) – For a monthly salary of Rs.150000, the approximate income tax will be around Rs.30000. The income tax will be deducted from the monthly salary as TDS and remitted to the government by the company.
Profession Tax (PT) – The employees who are getting a monthly salary of over Rs.15000 have to pay Rs.200 towards Professional Tax. This amount will be reduced from monthly salary.
Provident Fund (PF) – Employee contribution: If the basic salary of the employee is Rs.15000, he will mandatorily have to contribute to PF. So, a monthly deduction of Rs.1800 will be made from CTC.
Provident Fund (PF) – Employer Contribution: The CTC shown in the appointment letter may include employer contribution to PF (say, in this example Rs.1800 per month). This amount won’t be given to the employee. The company will remit this amount directly to the PF account of the employee.[also Read : If I quit my job now how much gratuity can I get?
Reimbursement of Medical Expenses – One of the components of salary will be reimbursement of medical expenses. This amount will be paid by the company against production of bills by the employee. The company may settle the payments once a quarter (or half year). So, to the tune of Rs.1250 per month be reduced from monthly salary
Reimbursement of Petrol Expenses: Again, reimbursement of petrol expenses, telephone expenses, etc will be paid to employees on production of bills to the company. So, one should take this amount out of monthly salary.
Medical Insurance: The Company may take a group health insurance policy for the employee and his family. The premium paid by the company on such insurance policy will be forming part of CTC. This amount won’t come to employees.
Transportation: The bus facility from residence to office is not free. Check CTC, this component may be part of it! Obviously, this amount won’t come in the monthly salary.
Leave Travel Concession (LTC): The LTC component will be around 5% of CTC, say Rs.90000 payable against production of bills annually.
Variable Pay: The CTC may include a component called Variable Pay. This will be a sizable component of the salary (say, 20% of CTC). The fine print of the appointment letter may mention that ‘50% of the Variable pay is payable on completion of 12 months of service and the balance is payable on completion of Q2 of the subsequent year’ (means on completion of 18 months)”. Again, variable pay depends upon the performance of the company and the performance of the employee!
Summary: Mr. Ramakanth, out of Rs.150000 CTC will get Rs.73150 after deduction of (a) Income Tax Rs.30000 (b) PT Rs.200 (c) PF- Employee contribution Rs.1800 (d) PF – Employer contribution Rs.1800 (e) Medical Reimbursement Rs.1250 (f) reimbursement of petrol expenses Rs.1800 (g) medical insurance (say) Rs.1500 (h) transportation (say) Rs.1000 (i) LTC Rs.7500 (j) Variable Pay Rs.30000.
Plan your money carefully. Take home salary will be around 50% of CTC. The mutual fund advertisements mention that “Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing”. Similarly, we can say that “CTC is subject to many deductions. Please read the offer letter carefully before signing”.