All you wanted to know about CTC

HAVE never understood my payslip till date, says Avni Rustagi, a

native of Punjab. Avni, 25, moved to Bangalore four years back in
the hope of turning her dream into reality. In that order, she took up
work as a designer with an Information Technology firm. Avni pays
Rs 10,000 as rent for a spacious apartment, but ask her about how
she manages her other expenses and she throws her hands up in
the air. Numbers scare me, she admits. I don`t know a thing about
finances. She says, For instance, I don`t even understand my pay
structure or CTC as it is called, what I get in hand or why I get that
much. Wealth realised that Avni's dilemma is a common problem
with most working people. The transformation from CTC to take
home leaves mostly everyone confused. Let`s decode and
understand what happens when CTC becomes take home.

What is CTC? 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. Here is Avni`s CTC or Cost to Company.
Particulars-Rs (per annum)
Basic 480,000
Dearness Allowance 48,000
Entertainment Allowance 12,000
House Rent Allowa`nce 96,000
Conveyance Allowance 12,000
Overtime Allowance 12,000
Medical reimbursement 15,000
Gross salary 675,000
Company`s contribution to provident fund 57,600
Annual CTC 732,600

Monthly CTC 61050

Avni`s salary package is quite transparent. However, each company
has its own method of calculating CTC. Companies may offer an
attractive CTC pay structure but the take home may be substantially
lower. Here are some components that are commonly used in the
CTC:
1. IT companies often add training costs in the CTC. These costs are
incurred by the company for training the employees. So, naturally
these do not come in the form of take home.
2. Banks include interest subsidies in CTC. That is, if you are a bank
employee, you are entitled to a discounted rate on loans.
3. Performance bonuses are also included in the CTC. These are
variable components and you will be paid out a percentage of the
bonus depending on your performance.
4. 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.
5. Some 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. Some companies who include gratuity as part of
CTC pay you the propornate amount as ex-gratia, in case you leave
the company before completing five year as required.