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Guide To Cost To Company & List Of Components

by MarketBillion
Guide To Cost To Company & List Of Components

You can frequently come across phrases like Cost to Company or CTC, Take Home Compensation, and Basic in a potential employee’s wage breakdown while checking out your final salary. Although the gross amount shown at the conclusion of the calculation column may resemble a huge amount, the real amount you receive as an employee is very different.

Understanding how the compensation system functions are essential for becoming a skilled negotiator and making sure that you are getting paid properly. Everyone understands the distinction between take-home pay and CTC, but few are familiar with the mathematics underlying it. However, if the concept is too confusing for you then you can certainly take the help of a CTC calculator. In case you want to know more about the CTC calculator, you must first study the fundamentals of total wage in order to appreciate the finer points as an employee.

CTC calculator can help you know about your in hand salary and how your total wage has been distributed.

What is the main difference between Cost to Company (CTC) and Take Home Salary

The total salary matrix is made up of a long list of entries and you will be able to find various partitions of your total salary while going through the same. Some of these parts include basic, food assistance, house rent assistance, benefits, provident fund, taxes, etc. All of these entries are a component of the CTC, or Cost to Company.

In layman’s terms, CTC or Cost to Company implies the total cost to the firm for an employee. The sum of all the aforementioned wage components is known as the cost to the company (CTC). Both monetary and non-monetary elements make up these components.

The main disadvantage of the CTC structure is that it has several deductibles that are included in the total compensation but are not paid by the employee. This gives CTC a considerably exaggerated appearance. Here, the concept of take-home pay enters the picture. The amount that is ultimately paid in the employee’s bank account after all required deductions, such as TDS, PT, PF, etc., is known as the take home pay.

What are the main components of CTC or Cost to Company?

While working for a company your final payment will be as follows:

CTC = Basic + Allowances + Deductibles

The basic wage is the first and most significant component of the CTC. This sum represents the compensation owed to the employees for their contributions to the company. It is included in their take-home pay and is taxable as income. For your information, employers often ensure that the basic pay makes up no more than 40% of the total CTC.

Allowances make up the second part of the CTC. Allowances are all the extras and advantages that the employer provides to the employee, both directly and indirectly. You can get information about these if you use a CTC calculator.

Allowances in CTC include:

  • DA or Dearness Allowance
  • Entertainment Allowance
  • HRA or House Rent Allowance
  • Conveyance Allowance
  • Medical Allowance
  • Others (as per the company’s internal policies)

These CTC-related benefits are all governed by various income tax laws. The Income Tax Act in India specifies the procedures for taxing certain allowances. Therefore, it is crucial that you study these regulations while checking out wage structure, minimize your tax burden as an employee and maximize your take-home pay.

The mandatory deductions make up CTC’s third and final component. Mandatory deductions from an employee’s salary include Professional Tax (based on the state in which the organization is headquartered), Provident Fund, and Income Tax (based on the employee’s tax rate) are among these deductions.

Calculation of your salary with the help of a CTC calculator

There are several methods for converting CTC to take-home pay. While some of these techniques are governed by corporate policies and pay structures, others are derived from regulations governing land use and taxation.

Here is an illustration to help you better understand CTC and how to determine take-home pay from CTC with the help of a CTC calculator:

BasicBasic3,75,000
AllowancesCommunication Allowance Travel Allowance House Rent Allowance Food Coupons Gift Others48,000 25,000 84,000 5,000 10,000 2,50,000
Gross Salary 797,000
Benefits along with deductiblesProvident Fund Medical Insurance43,000 45,000
CTCGross Salary + Benefits8,85,000

To conclude

One of the most difficult points of conflict between an employer and employee is wages. While an employer may want to get the most out of a potential resource at the lowest cost, they must also watch out for any underpayment of talent or other actions that would indicate probable exploitation. As an employee, you can certainly make use of the CTC calculator to understand everything about your salary structure.

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