What Is CTC? How Is It Calculated?

6 mins read
by Angel One
Discover what is CTC in this comprehensive guide. Gain insights into how it shapes your total earnings and the difference between CTC and your take-home pay, empowering you to make informed and prudent financial decisions.

It’s not uncommon for employees to feel puzzled when they see a difference between the salary their organisation promises and the actual amount deposited in their bank accounts. Most companies provide employees with a CTC or Cost to Company figure, which differs from the net income that eventually lands in your bank account. 

In this article, we’ll break down what is CTC, what’s included in the Cost to Company, and walk you through the steps to calculate your CTC.

What is CTC in Salary?

CTC in Salary refers to the total expenses incurred by a company for each of its employees. This comprehensive amount includes not only the employee’s base salary but also encompasses benefits, bonuses, and any other costs associated with their employment. 

It’s important to recognise that the Cost to Company can vary due to a range of factors and is separate from the take-home salary, which is the net amount an employee receives in their bank account after tax deductions and other withholdings.

What does CTC in Salary Include?

Now that you have a clear understanding of what is CTC in salary, let’s delve into the specific components that constitute the Cost to Company of an employee:

  • Basic Salary

The basic salary represents the essential, unchanging segment of an employee’s monthly income. On average, it makes up around 40% to 50% of the total CTC, playing a substantial role in the overall earnings structure for employees.

  • Dearness Allowance (DA)

DA is an essential allowance designed to assist employees in coping with the rising costs of living brought about by inflation. It is calculated based on a certain percentage of the basic salary and may vary to align with inflation rates.

  • Incentives and Bonuses

Incentives and bonuses are monetary rewards granted to employees for their exceptional performance and contribution to the organisation’s goals.

  • Conveyance Allowance

Conveyance allowance covers expenses associated with business-related travel. This includes costs related to transportation, accommodation, and meals when employees are on the move for work-related activities.

  • House Rent Allowance (HRA)

HRA is an allowance aimed at assisting eligible employees with their housing expenses. Its tax treatment varies, with exemptions available under certain conditions as defined by Section 10-13A of the Income Tax Act.

  • Medical Allowance

The medical allowance is a regular monthly payment made by the company to employees. This payment is extended to employees regardless of their health condition and is sometimes confused with medical reimbursement, which covers specific medical expenses.

  • Leave Travel Allowance or Concession (LTA/LTC)

LTA/LTC reimburses employees for travel expenses incurred when they attend work-related events. It typically includes expenses related to rail, airfare, or bus travel for such occasions, and these expenses can be tax-exempt under specific guidelines.

  • Vehicle Allowance

Vehicle allowance covers the costs associated with commuting between an employee’s residence and their office location. It assists employees in covering expenses related to their daily travel.

  • Telephone and Mobile Allowance

This allowance represents the organisation’s contribution towards employee’s mobile expenses for business purposes. It helps employees manage their communication costs while fulfilling their professional responsibilities.

  • Special Allowance

The special allowance is a versatile category that encompasses payments that do not neatly fit into other specific components of the CTC structure. It can vary widely and is often utilised to accommodate various other financial components of an employee’s compensation package.

How to Calculate CTC?

The formula for calculating the Cost to Company is as follows:

CTC = Gross salary + (Direct Benefits + Indirect Benefits + Saving Contributions) or deductions

For example, let’s consider an employee with a basic salary of ₹20,000. Additionally, the employer provides ₹4,500 for health benefits, and the employee contributes 10% of their basic salary to the Employee Provident Fund (EPF).

To calculate an employee’s CTC, you would add these components:

CTC of the employee = ₹20,000 (Basic Salary) + ₹4,500 (Health Benefits) + 10% of ₹20,000 (EPF Contribution)

= ₹20,000 + ₹4,500 + ₹2,000

= ₹26,500

So, the employee’s CTC is ₹26,500, which represents the total compensation offered by the employer, including the basic salary, health benefits, and EPF contributions.

What are the Cost To Company Benefits?

Apart from knowing what is ctc in job, here are the cost to company benefits that form a significant part of your compensation package:

1. Direct Benefits

Direct benefits are the monetary components that are paid to the employee on a monthly basis, and they are typically subject to taxation. These benefits include Basic Salary, Dearness Allowance, Conveyance Allowance, House Rent Allowance (HRA), Medical Allowance, Leave Travel Allowance, Mobile Allowances, Incentives and Bonuses and Performance Bonus. 

2. Indirect Benefits

Indirect benefits are advantages provided to employees without direct cost to them. These benefits are typically an expense incurred by the company and not passed on to the employees. They include:

  • Health Care Costs

Coverage of health care benefits, including health insurance that may also extend to family members.

  • Taxis/Buses for Commute

Some organisations offer transportation services, such as charter buses or taxis for employees’ commutes to the office.

  • Low-Interest Loans

Certain employees, like those in the banking sector, may have access to loans at subsidised interest rates.

  • Meals and Snacks

Many modern office spaces provide on-site meal and snack options for employees.

  • Office Space Rent

In some cases, companies cover the cost of the office space used by employees.

  • Company Leased Accommodation

Companies may provide additional support for employees who need to relocate for their jobs.

3. Savings Contribution

Savings contributions represent monetary values added to an employee’s CTC. These contributions typically involve savings or investments and may include:

  • Gratuity Amount

Paid at a rate of 4.81% as per Indian law, employees receive gratuity. However, if an employee leaves the company before completing five years of service, they may forfeit this amount.

  • Employer Provident Fund Contribution

Employers contribute 12% of the employee’s basic salary to their Provident Fund (PF) account.

  • Superannuation

A predefined amount is contributed to an account, which the employee can withdraw at the time of their retirement.


To sum it up, a thorough understanding of the components included in your CTC is indispensable for unravelling the intricacies of your compensation package, comprising diverse benefits and contributions. Knowing how to calculate CTC empowers you to assess the true value of your job, promoting transparency and trust between you and your employer and helping you make informed financial decisions that align with your goals.


What is CTC in salary?

CTC in salary stands for “Cost to Company.” It represents the total amount a company will spend on you as compensation per year, encompassing various elements.

What is CTC for freshers?

CTC for a fresher refers to the complete salary package offered to the employee, including basic pay, reimbursements, allowances, and more.

Is the Cost-to-Company the same as the take-home salary?

No, the Cost-to-Company (CTC) is different from the take-home salary. CTC represents the total cost to the employer, including various components like basic salary, allowances, bonus, and provident funds. In contrast, the take-home salary, or net salary, is the amount an employee receives after deductions such as taxes and EPF contributions, reflecting the actual money they receive in hand.

How is CTC calculated?

CTC is calculated by summing up an employee’s salary and various additional benefits, including EPF, food coupons, gratuity, house allowance, travel expenses, medical insurance, and more.