What is CTC: Full Form, Meaning, Components, Role, & Calculations
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CTC Full Form

CTC full form is Cost to Company. It is the total amount a company spends on you per year for your salary package. In this article, we’ll delve deeper into the different components that make up your CTC.

What Is CTC?

CTC is the total package a company spends on an employee per year. In other words, CTC salary means the total amount an employer spends to hire and retain an employee. Besides the basic in-hand salary, it also includes other benefits an employee receives from the company, including health insurance, provident fund, HRA, travel allowance, etc.

Key Components & Elements of CTC - Cost to Company

Several components and elements constitute your Cost to the Company, including your basic salary, allowances, insurance, HRA, etc. Let's look at these elements to understand the CTC structure:

A. Fixed Salary Components 

  • Basic Salary: It is the base salary you receive from the company as an employee. It does not include any bonuses, etc. Usually, it is less than what you earn each month. When the employer gives you a hike, it only adds to your basic salary.
  • House Rent Allowance (HRA): HRA is a salary component you receive to pay for your accommodation. Almost every employer has a partially or wholly tax-free HRA component in their salary package. However, your HRA will be taxable if you are not staying in a rented house.
  • Special Allowances: Any amount not part of any other category in the CTC is called a special allowance. For instance, if your CTC is Rs 10 Lakh and all other CTC elements cover Rs 8 Lakh, the remaining Rs 2 Lakh will be your special allowance.

B. Variable Pay and Performance-Linked Bonuses

  • Incentives or Bonuses: Your CTC will also include bonuses and incentives per the company's policies. These include quarterly or yearly bonuses, performance-linked rewards, etc.
  • Leave Travel Allowance/Leave Travel Concession (LTA/LTC): If you are traveling on leave, your employer may offer you LTA or LTC in your salary package. Using this facility, you can claim your travel expenses when traveling, even when on leave.

C. Other Perks and Allowances

  • Phone and Internet Allowance: This CTC element helps you pay for your phone and internet charges used as part of your work. Earlier, it was meant for employees who had to communicate with people or parties as part of their jobs. However, as many employees now work from home, many companies add this element to their employees’ CTC salary packages.
  • Indirect Elements: Your salary package might have indirect benefits that may increase your CTC but not your in-hand salary. For instance, if you borrow a loan from your employer, it will be added to your CTC but not your salary package.
  • Conveyance Allowance: Employees offer a conveyance allowance to cover travel costs from home to work. It can be a percentage of your basic salary or a fixed amount you receive each month.
  • Medical Allowance: As part of the CTC package, you will receive a medical allowance regardless of whether you need treatment. It is not medical reimbursement that you receive against medical bills. Medical allowance is a fixed percentage of your basic salary.

D. Retirement Benefits

  • As part of the retirement benefits, your employer contributes 12% of your basic salary towards the Employees' Provident Fund (EPF). Superannuation is another type of fund you receive as a pension or retirement benefit.

Also Read- Home Loan Eligibility Criteria based on Employment

How to Calculate CTC (Cost to Company)? 

Employers pay their employees monthly wages and additional perks at a cost to the company, the CTC full form in salary. According to the CTC formula, here is a breakdown of the CTC:

CTC = Gross Salary + Direct Benefits + Indirect Benefits 

For instance, if your basic salary is Rs 50,000 and your employer pays an additional Rs 5,000 as a house rent allowance, your CTC is Rs 55,000. Usually, you will not receive the CTC amount in cash.

What is Gross Salary?

Gross salary is the amount you are eligible to receive before making voluntary deductions, like taxes, insurance premiums, employee welfare deductions, etc. It includes all benefits, service costs, allowances, etc., you are entitled to receive. After making the deductions, you receive the in-hand salary, known as your net income.

What is In-Hand Salary?

In-hand salary is the net salary you take home each month. It might differ during certain months when you receive a bonus or another benefit. When planning for a Home Loan application, it is your in-hand salary from which you must repay the EMIs.

Difference between CTC, Gross Salary & In-Hand Salary

Gross salary includes income tax, net salary, retirement benefits, bonuses, insurance, and other benefits you receive from your employer. Net salary is the in-hand salary you take home after subtracting all applicable deductions. Current CTC means the total cost your employer spends towards you for availing of your skills and services.

CTC Role in Taking Home Loan

When planning to apply for Home Loan, lending institutions, including Kotak Mahindra Bank, will check your income to judge your repayment capacity. However, rather than looking at your CTC, they are more interested in the net salary you would use to pay your monthly instalments. Still, understanding the CTC meaning helps calculate your gross salary from your net salary, enabling you to plan your repayment adequately.

Also Read- Can I Get a Home Loan On a 40,000 Salary?

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.