What`s CTC in your salary slip?

Many of us, who are salaried, may be wondering what CTC in their salary statement implies.

CTC stands for Cost to company, which may be interpreted as the total cost incurred by an organization, towards their employee, which may include salary, incentives, perks, statutory contributions, training et cetera.

CTC is invariably a gimmick of the company and its Human Resources department, to pose an impression, that they are offering a large salary, but in reality they thrust all human resources expenses on the salary.

To understand the above, let us assume, your annual salary is Rs 4 Lacs, which implies, you are getting around Rs 33,000 per month. But actually you would get half of this, as all the money goes towards deductions for facilities. The company would claim that it's offering good facilities; as a matter of fact, however, the employee is paying for those facilities. So, you may be paying for facilities, which you may not require also.

The salary structure varies from company to company. For instance some companies also include gratuity in CTC, which is a bonus one gets on retirement upon completing 5 years in a company. 

It may be noted that take home salary, is different from CTC, and is lesser than it, due to deductions like tax liability and contribution to provident fund.

Contribution to Provident Fund (PF) – This is done by employer and employee as well. The contribution made by employer is a part of CTC, as it is the cost borne by the company to employ you, and is usually 12% of the basic salary. Also, there is employee's contribution to PF, which is invariably 12 % of the basic salary, deducted from monthly salary and deposited into PF account.

Tax

The company where you are employed computes tax, which is deducted every month from the CTC. This comprises of income tax and professional tax.

Let's understand this more deeply by taking the case of one Mr. Amit Oberoi, who recently joined a private limited company, as a marketing manager. His salary slip is as below:-

Particulars	Rs (per annum)
Basic	500,000
HRA	60,000
Conveyance Allowance	15,000
Entertainment Allowance	10,000
Overtime Allowance	10,000
Medical Reimbursement	15,000
Gross Salary	610,000
Provident Fund	60,000
Annual CTC	680,000
Monthly CTC	56,667

  Table (A)

  Now let us try to figure out, what will be the take home for Amit.

Particulars	Taxable Amt (Rs)
Basic	500,000
HRA	60,000
Conveyance Allowance	5,400
Entertainment Allowance	10,000
Overtime Allowance	10,000
Medical Reimbursement	0
Gross Taxable Salary	585,400
Tax	52,612
Net Annual Salary	532,788
Net Monthly Salary	44,399

  Table (B)

Basic salary is fully taxable u/s 17 of IT Act, which in case of Amit is totally taxable. Housing Rent Allowance in case of Amit Oberoi is fully taxable, as he is living in his own house. Conveyance allowance of Rs 9,600 is exempted from tax, hence Rs 5,400 is taxable in this case. Entertainment Allowance is fully taxable, unless bills are presented to the extent that such expenses were used for office expenditure. However, in this case it is taxable. Overtime allowance is fully taxable. Medical reimbursements, if substantiated with bills, are exempt to a limit of Rs 15,000 annually. In this case we can assume that Amit presented the bills and got exemption.

The gross taxable salary thus works out to be Rs 585,400.

The following table presents new tax slabs announced by our finance minister, Pranab Mukherjee, for Financial year 2010-11, during Budget 2010:-

Income Range	Tax rates for 2010-11	Tax rates for 2009-10
Less than Rs 1,60,000	Nil	Nil
Rs 1,60,001 – Rs 3,00,000	10%	10%
Rs 3,00,001 – Rs 5,00,000	10%	20%
Rs 5,00,001 – Rs 8,00,000	20%	30%
Above Rs 8,00,000	30%	30%

  Table (C)

Based on the above, the tax calculation for Rs 585,400 works out to be Rs 52,612.

The net annual salary thus works out to be Rs 532,788, while net monthly salary works out to be Rs 44,399, as given in Table (B).

So Amit Oberoi`s monthly take home would be:

Net monthly salary being Rs 44,399Less: contribution to provident fund being Rs 5,000Less:  Professional tax being Rs 200

The monthly take home salary of Amit thus works out to be Rs 39,199.

So as against CTC of Rs 56,667, Amit Oberoi`s take home salary is just Rs 39,199.

So while applying for a job, one should first analyze the break up of CTC offered by the HR, before accepting the job offer.