What does CTC (Cost to Company) salary figure means in India ?

Let's unwrap the mystery behind CTC in India

CTC in India
Salaries are quoted in terms of CTC in India (or cost to the company). CTC is nothing but the cost that the company incurs to employ you and keep you employed. It includes your pay and anything else that the company may incur to keep you in employment. It’s important because a lot of components of your CTC in india may not translate into actual take-home cash every month.As a broad thumb rule, when talking about CTC in India, your in-hand salary is approx. 70% of your CTC. So if your annual CTC in India is Rs 5 lakh, you can expect to get an annual take-home of 3.5 lakh or Rs 29000 per month.

So what happens to the difference? There are many components that are offered in addition to the CTC, ESOPs being a good case in point. So what are the things you need to look at there?

1. Certain components of CTC may not be cash components

A company may beef-up your CTC with components that don’t really translate into month-end cash or that may have just a notional component. Some examples include:

-Value of perquisites is included in CTC. So if you are provided with company accommodation, car, driver, child education expenses and so on, the value of these get included in the CTC.

-Banks may include interest subsidies in CTC. That is, if you are a bank employee, you are entitled to a discounted rate on loans. The difference between the market rate and the discounted rate may be considered part of your CTC in India. Even corporate give out loans and advances at subsidized interest rates and the subsidy would be added to the CTC.

-Companies may include the cost of group medical or life insurance. Some companies may add food subsidies, that is, you may be getting a subsidy on your lunch in the office canteen. If you carry your lunch from home, you may not actually benefit from this component. Similarly, if the company provides transport, there may be transport costs or subsidies.

-Companies include gratuity in the CTC. Gratuity is a sort of bonus that is paid out when you resign or retire from your company. The catch: You are entitled to gratuity only after completing 5 years in the company.

-Employer’s contribution to your provident fund is included in CTC in India. This amount is deposited by the employer in your provident fund and so this does not form part of your take-home. You will get this amount only at the time you resign or retire.

2. Deductions further reduce monthly take home

Even after you have arrived at the cash value of your take-home, there are certain deductions made from it. Tax is one such deduction. It is nothing but the taxes withheld from your income by the company. It is the equivalent of ‘withholding tax’ that several countries have. How much tax is deducted depends on the various components of your salary.

In addition to an income tax deduction, you will find a professional tax deduction being made every month.

A lot of companies may allow you to choose the components in your salary. For instance, they may allocate a certain amount as a ‘flexi pay’ component. Within this amount, you may be able to choose components such as HRA, medical reimbursement, etc depending on what may be most tax-efficient for you. If you are in a higher income bracket, it would be wise to consult a professional to help you optimize your salary to make it tax effective.

The other deduction is your contribution to the provident fund. This amount is deducted from your monthly salary and deposited in the provident fund. This is your contribution and comes out of your monthly salary, thus reducing your take-home. Again, a lot of companies make this deduction optional. However, making provident fund contributions may be a wise saving tool. Currently, company provident funds earn tax-free returns of 8.5% per annum. Over a long period of time, that would build up to a decent corpus.

3. Annualised and variable components

There are certain components that are paid out to you annually or subject to your performance; these do not become part of your monthly take home. Examples include leave travel allowance, annual bonus etc.

Variable salaries can range from 15-50%. For programmers, the variable pay would be around 15% of the CTC while for marketing professionals it could go up to 50%. Before the 2008 crisis, most companies paid out the variable components in full, but that has changed now. There are various factors that come into play while arriving at the variable payouts. The company’s performance, as well as your individual performance, would both matter.

4. Understand what your ESOP

Employee Stock Option Plans or ESOPs are given out over and above the CTC. The company gives employees an option to purchase stocks at a certain future date at a discounted price. As the value of the company scrip increases, the employee stands to earn capital gains. “When a company offers ESOPs, the CTC part of the compensation may be a little lower.

While ESOPs might seem attractive when the company HR presents the numbers to you, it is important to look into the fine print. There are a number of issues here. Firstly, people do not realize that there is a certain vesting period for ESOPs. That is, you will be eligible to exercise the ESOP only after working in the company for a certain period, say 2 years or so. The second issue is the strike price. This is the price at which the ESOP is granted. If the market price at the time of exercising the ESOP is lower than the strike price, there is really no gain. And that has happened many times in the past.

So is there room for negotiation? There is always a 10% room for negotiation in any component of your salary. So you might ask the employer to reduce the variable component by 10% or the value of ESOPs by 10% and increase the cash component by 10%.


    • Dear Farhat,
      At 3.5 Lakh CTC, you should not be liable to pay any taxes after HRA and other declarations. Please note, You should make all your declarations upfront to ensure maximum tax benefit.
      In case you do not have any investments/educational loan, below is the rough calculation of your tax :
      CTC – Rs 3,50,000
      HRA – Rs 1,00,000 (max limit)
      Net Income (CTC – HRA) = 2,50,000

      As per latest income tax slabs, a net income upto Rs 2.5 lakhs is non taxable.
      Therefore, you should not be liable to pay any taxes.
      Also, if you make all declarations upfront, your TDS shall also be Zero.

      Good Luck.

    • Hi Ritu,

      ITC Infotech in hand salary is better than others for the same CTC figure.
      You can assume 80% of 12 lac to be your in hand salary as an estimate.

      Good Luck.

    • Hi Avinash, thats slightly specific. You should expect around 32-34K per month as per the 70% rule.
      However, someone who knows the salary structure at the company can give you a more specific number.


Please enter your comment!
Please enter your name here