Cost to Company (CTC) Meaning & Calculation

Cost to company (CTC) is the total cost a company incurs on an employee. In other words, this includes their salary, benefits, allowances, and other employment-related expenses. Businesses use this term to describe their total expenditure on an employee. Thus, it helps both the employer and employee understand the employee compensation package being offered.

Key Components of CTC in the Indian Payroll System

To emphasize, CTC consists of four main parts: fixed components, variable components, benefits, and deductions.

To enumerate this further, fixed components include basic salary, house rent allowance (HRA), dearness allowance (DA), conveyance allowance, and medical allowance.

The most common variable components include performance bonuses, sales commissions, and profit-sharing plans.
In general, some examples of benefits include provident fund (PF), gratuity, health insurance, etc.

Gross Salary vs Net Salary

Employees receive a gross salary as their total earnings before any deductions. However, after deducting taxes and other contributions, they take home the remaining amount as their net salary.

CTC calculation

Notably, CTC is calculated by adding up all the direct and indirect costs that a company incurs on an employee in a given year.

CTC = Gross salary + Direct benefits + Indirect benefits + Saving contributions or deductions

Frequently Asked Questions

Q1.	How is CTC different from Gross Salary?
Ans.	To begin with, gross salary is the total earnings before the deduction of taxes and includes bonuses, overtime pay, and other differentials. Whereas CTC is the total cost a company spends on an employee, including salary, benefits, and other expenses.
Q2.	Is CTC the same as Take-Home Salary?
Ans.	No, CTC and take-home salary are not alike. To begin with, CTC represents the total salary package that includes both monetary and non-monetary benefits without tax deductions in salary. In contrast, take-home salary is the net amount that the employee receives after a full CTC breakup, which includes deductions like taxes.
Q3.	What components are included in CTC?
Ans.	The first component in the salary structure in India is the basic salary. Usually, it constitutes a part of their take-home salary and is subject to income tax. The next component is allowances, which include all the direct and indirect perks and benefits to the employees. Hence, these benefits include house rent, dearness allowance, medical allowance, conveyance allowance, entertainment allowance, and others.
Q4.	What are the Cost to Company benefits?
Ans.	CTC benefits refer to various components that are included in the employee’s compensation package. Henceforth, these are categorized into Monetary benefits, non-monetary benefits, and savings contributions. ✅ Monetary benefits: It includes basic salary, allowances, and bonuses. ✅ Non-monetary benefits: health and insurance benefits, low-interest loans, office space rent, and retirement benefits. ✅ Savings contribution: Gratuity, employee provident fund, and superannuation.
Q5.	How to calculate CTC?
Ans.	In particular, you calculate CTC by adding all the components that contribute to an employee’s total annual expense for the company. You can do the CTC calculation as shown below: CTC formula: Basic Salary + Allowances + Perquisites + Bonus and Incentives + Employer Contributions to Retirement Funds − Deductions
Q6.	How to calculate Gross and Net Salary from CTC?
Ans.	Gross salary = CTC – Employer’s PF contribution (EPF) – Gratuity Net salary = Gross Salary – Income Tax – Employee’s PF contribution (PF) – Professional Tax