Understanding CTC and Your Salary Breakup

CTC is a commonly used term, aggressively negotiated and chased by professionals as self- value proposition and
then conveniently forgotten in pursuit of the monthly fixed salary component.
Understanding CTC
The Cost to Company (CTC) includes all monetary and non-monetary benefits that a company absorbs to facilitate
continuity of one's employment. Hence, it is a bigger picture than the net monthly receivables of an employee.
For example- Mr. X into his first job would consider entire CTC of Rs 1 lakh as his take home salary with belief that he
would get Rs 8333 per month for all 12 months. This is one of the examples of lapse of judgment that most
professionals make while working out their actual compensation from an employer.
CTC the components
CTC comprises of a fixed compensation plus variable performance pay
A) Fixed Salary this has following sub-components:

Basic Salary: A taxable amount, actually paid to an employee

Dearness Allowance: A taxable amount, aimed to compensate for the rising cost of living (may not be
applicable to all employers)

House Rent Allowance (or HRA): Paid to meet expenses of renting a house computed as a percentage of
basic which varies from 50% for metro cities to 30-40% for Class A or Class B cities. It is exempted from tax

Conveyance Allowance: A maximum, tax-exempted amount of Rs 800 per month is provided.

B) Reimbursements Payment as in reimbursements through billed claims.

Telephone Bills and Fuel & Maintenance: A taxable amount, comprising of company's reimbursement for
employees' landline or mobile bills and fuel expenses, subjected to a limit, upon submission of claims
accompanies by bills

Medical Reimbursements: Payable for medicines and medical treatment, subjected to Rs 15000 annually.
The entire amount is taxable unless bills are provided for the amount. Payout cycle varies from monthly to
annually

Vehicle Hiring/Meals: Meal coupons are tax exempt provided it is not in the form of cash. Vehicle hiring is
subjective to hierarchy grades and is also tax exempted up to a limit

C) Retirement payables

Provident Fund: 12% of Basic is deducted from the Employees' salaries with equal contribution from
employer

Gratuity: Ideally a payable to employees with five years of services to same company and is a taxable,
annual payment.

D) Perks these may vary across companies and comprise of:

Leave Travel Allowance: Cost of domestic travel in India when on leave. Tax exemption is allowed twice in
a block of four calendar years.

Insurance premium: Premium paid for insurance risk cover policies of employees and dependants

Other perks: At discretion of company and can be electricity, servant, furnishings, credit cards and housing.