The Ultimate guide to CTC structure and components [2019]

What is CTC?

CTC means Cost to Company. How much does the company want to invest in you?

India offers salary packages with the “Cost to Company” (CTC) measurement. This includes all costs incurred by the company on behalf of the employee, both monetary and non-monetary before taxes.

Example: INR 20000 per month or INR 2,40,000 per year. Most companies mention it per year.

In short, CTC consists of fixed compensation, variable cash incentives and benefits. Importantly, the value of stock awards is typically outside of, and in addition to, the CTC. 

What does Current and Expected CTC mean?

Current CTC is your gross salary per year. Expected CTC is your expectation in your future company.

Usually, it is recommended to demand at least a minimum 20% hike on your current CTC.

Types of CTC components

ComponentsDescriptionTax ExemptionType
BasicMandatory salary component in a salary structure. All bonuses or future benefits are calculated based on thisAnything beyond 12% basic salary becomes taxable!Fixed Component
HRAThis is an allowance given by the employer to the employee to fulfill the employee’s accommodation needsThis component is subject to tax exemption based on a calculation.Fixed Component
Conveyance or Transport AllowanceIt is given to employees to meet their daily routine expenses traveling from your home to work.The total amount of Rs1600 per month or Rs 19200 per annum can be claimed as tax exemptionFixed Component
Dearness AllowanceDearness Allowance (DA) is an allowance paid to employees as a cost of living adjustment allowance. The allowance is paid to the employees to manage inflation.

Dearness allowance is calculated as a specific percentage of the basic salary which is then added to the basic salary along with other components like HRA (House Rent Allowance) to make up the total salary of an employee of the government sector.

Fully TaxableFixed Component
Education AllowanceThis allowance is applicable if you have children.Maximum of 100 per month is tax exempted and limited to 2 children only (CTC should have this component mentioned to avail for exemption)Not sure
Medical allowance / Medical ReimbursementThe allowance that can be claimed when you or your dependents fall sickMedical allowance is tax exempted up to INR 15000.. Anything over it is taxableVariable Component
LTA / Leave Travel AllowanceYou will have to submit an up and down journey ticket ( with the receipt) to claim this amount.You could claim a tax exemption on the LTA amount mentioned in your CTC.Variable Component
Meals / Meal CouponsSome companies issue meal coupons Sodexo passesCTC should have this component mentioned to avail for full tax exemption. Maximum limit is the amount mentioned in CTC.Not sure
Advanced Statutory BonusBonus received by the employee in advance from the employer according to the amendment of Bonus Act. the payable bonus is calculated on the basis of employers profit and employee salaryNot sureNot sure
Supplementary AllowanceMaximum limit depends on the companyFully TaxableVariable Component
Lifestyle allowanceNot sureNot sure
Holiday allowanceAllowance when you work during holidays or weekendsFully TaxableVariable Component
City Compensatory allowanceCCA is offered by companies to its employees compensate for a relatively high cost of living in metropolitan citiesFully TaxableVariable Component
Special AllowanceUsually used as a balancing component in the salary structureFully TaxableVariable Component
Personal allowanceNot sureNot sureNot sure
Basic Salary

This is fixed, no bonuses or allowances are added in it. This is common across all companies. 12% Basic Pay deduction Employee Provident Fund account. Anything beyond 12% basic salary becomes taxable!

Bargain to get the highest basic pay, you’ll get more bonuses. For eg., company bonuses are announced like 2 x basic pay.

HRA / House Rent Allowance

This is an allowance given by the employer to the employee to fulfill the employee’s accommodation needs. This component is subject to tax exemption based on a calculation.

Conveyance or Transport Allowance

Transport allowance that companies give you; fully tax exempted (CTC should have this component mentioned for exemption).

You do not have to provide any documentation of conveyance allowance from your employer. The total amount of Rs1600 per month or Rs 19200 per annum can be claimed as tax exemption under this allowance. It is given to employees to meet their daily routine expenses travelling from your home to work. The limit was doubled in the budget 2015. Earlier it was Rs 800 per month.

Education Allowance

This allowance is applicable if you have children. Maximum of 100 per month is tax exempted and limited to 2 children only (CTC should have this component mentioned to avail for exemption)

Medical allowance / Medical Reimbursement

Medical allowance is tax exempted up to INR 15000.. Anything over it is taxable

LTA / Leave Travel Allowance

You could claim a tax exemption on the LTA amount mentioned in your CTC. You will have to submit an up and down journey ticket ( with the receipt) to claim this amount.
(CTC should have this component mentioned to avail for exemption)

Meals / Meal Coupons

Some companies issue meal coupons Sodexo passes (CTC should have this component mentioned to avail for full tax exemption). Maximum limit is the amount mentioned in CTC.

Special Allowance

The special allowance is a fixed amount that is given to employees over and above the basic salary in order to meet certain requirements. There is a taxable allowance and an exempt allowance.

Advanced Statutory Bonus

Bonus received by the employee in advance from the employer according to the amendment of Bonus Act.

The payable bonus is calculated on the basis of employer’s profit and employee salary. This Act informs that the employees who draw a monthly salary of 10000 – 21000 are eligible to receive the bonus. Bonus are additional payments added to the salary from the profits if the company. Certain establishments which are mandatory to pay the bonus are the organizations with at least 20 employees and should be of minimum 5 years old and whose employees don’t draw more than 21000 per month.

According to this Act, wages are a sum of basic + DA and the maximum statutory bonus has been revised to 20% of the minimum wage or 7000.

In case of retired employees, they are eligible for arrears and the bonus for the current employee should be paid within 8 months after the completion of the financial year and it is paid for the following financial year. Previously the ceiling point for the bonus is 3500 but now it is revised to 7000.

Advance Statutory bonus is calculated by the minimum( 8.33%) or maximum ( 20%) of 7000 or the minimum wage.

City Compensatory allowance

CCA is offered by companies to its employees compensate for a relatively high cost of living in metropolitan cities. This allowance is used to incentivize and retain employees in towns and cities where the cost of living is higher compared to employees working in other locations.

Personal allowance

This type of allowance is paid to employees for commuting to their workplace from home every day. If a conveyance allowance is less than Rs. 1,600, then it will be considered as non-taxable. The allowance is exempted up to Rs. 1,600 only, any amount more than that will be taxable as per the income tax act.

Dearness Allowance

Dearness Allowance (DA) is an allowance paid to employees as a cost of living adjustment allowance. The allowance is paid to the employees to manage inflation. DA is fully taxable with salary. The income tax act clearly specifies that tax liability for DA will be calculated along with salary. It should be declared while filing your income tax returns.

Frequently Asked Questions

What is fixed and variable CTC?

A fixed CTC contains fixed components only, and it doesn’t have variable components in its structure. Variable CTC contains both fixed and variable CTC component. Refer the table above.

Is it Monthly or Yearly?

CTC is usually Yearly.

Fixed or Variable CTC? Which one is better?

As far as I’ve experienced, fixed CTC is better. The take home salary is higher in a fixed CTC when compared to variable CTC.

What is a Take home salary?

The Take-Home calculation is the sum of Basic Pay, HRA, Conveyance, Education, LTA or other allowances.Your Take home doesn’t include the Company Contribution to PF, or any other benefits given by your company.

What is Net Salary?

Take-home salary and net salary are the same.

What is income tax?

Income Tax = 10% or 20% or 30% of your Total Taxable Income

Your Total Taxable Income = Total yearly income – Tax exemption on Salary Components – Tax exemption on Investments

What is TDS?

TDS is Tax Deduction at Source.

TDS stands for tax deducted at source. As per the Income Tax Act, any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits. TDS has to be deducted at the rates prescribed by the tax department.

What is PF? How to calculate PF amount?

PF or Employee Provident Fund is a great long-term investment, and once everybody understands the value it gives, nobody would step up to withdraw it.

What is Gratuity?

Gratuity is a monetary reward paid by an employer to an employee for services rendered by him. Usually, an employee becomes eligible for gratuity after successful completion of 5 years of his services in an organization. However, if an employee dies before completing 5 years of service in an organization, the number of years of services to be entitled to gratuity gets relaxed to 1 year. Gratuity is payable to the eligible employees at the time of retirement or death or retrenchment or resignation.

How is gratuity calculated in CTC?

Gratuity is directly related to your basic pay, and not to your CTC. As per the The Payment of Gratuity Act, 1972,Gratuity is calculated as 4.81% of your basic pay. So, let’s assume your basic pay is Rs.10,000 pm, then Rs. 481 will be contributed per month to your gratuity fund.

How to know whether my CTC is better or not?

A good Take Home Salary defines whether your CTC is better or not.

How to wisely bargain to get the highest CTC?

Bargain on the Basic Salary. All your bonus benefits are dependent on this.

Is it okay to get a job offer from 10 companies and then decide on CTC?

No.

It’s not nice to get offer letter from 10 companies, and finally reject 9. Let’s be fair.

HRs put in a lot of effort to screen candidates and release offers. Get 2 offers and compare them, choose the best.

How NOT to get fooled in a salary negotiation?

Following are some examples to fool you, beware!!!

  • Adding One time Bonus in CTC at the time of joining
  • Including their EPF share inside the CTC itself
  • Adding Stock Options in CTC
  • Adding Insurance Facilities, Food coupons, Transport Facilities to CTC
  • Putting Large chunk of the variable component in CTC

Why are you looking for a job change?

Be honest.

HRs understand things, but make sure that it doesn’t backfire.

Are the Certificates offered by Coursera/Udemy/Linkedin Learning helpful? I mean, can I expect a higher CTC?

Of course, yes!

It shows your learning skills. However, pls note that this may NOT help like a university degree, but can be added as a point during salary negotiation.

Can I lie about previous company’s CTC?

No, please.

Follow professional ethics. Let’s be honest to ourselves. This may also lead to disciplinary issues, and may lead to termination once found guilty.

How to politely turn down a job offer due to low CTC?

Speak to HR with your valuable reason. I would always advise to have a very good relationship with the HRs you meet, so you can resolve issues smoothly.

I still remember, one of the companies I worked for was closed, so there was no chance to verify my experience with that company. I honestly spoke about this to HR, he advised me to remove the company experience from my resume to make things better.

So, please be honest with the HR.

Design Techie. 10 yrs into IT industry now. Passionate Home Organizer, Voracious Book Reader, Optimist. I write my own personal experiences on job search, career advice, entrepreneurship, money and life. Read more

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