Being an employee, it is your duty to have a clear knowledge of CTC. Although the word CTC is a common term in the business world, many working professionals do not know about it. If you are one of them, you are certainly in the right place now. In this article, we will tell you about everything related to CTC that a working individual should know. So, without any further ado, let’s dive in.
Understanding CTC
Maximum people are not aware of CTC meaning which is commonly known as cost To Company, is the all-inclusive annual package that is a total of every expense made by an employer for his or her employees in a year. Simply put, it is the total amount offered to a potential candidate after he or she is selected to work with a company.
Calculation
In simpler words, the cost to company is the sum total of earnings of a working individual and the deductions made from his or her salary, which includes both direct as well as indirect.
That means, the formula is CTC = Earnings + Deductions
Here, earnings include several vital elements such as Basic Salary, Allowances & Reimbursements, employee benefits like Gratuity and Annual bonuses, and much more.
Need to mention, you can also compute the same using a CTC calculator online. Using such calculators, anyone and everyone can calculate CTC in just a matter of seconds.
Now that you know what is CTC and what is the basic formula to calculate it, let’s know more about it.
All the points discussed below are some of the frequently asked questions about CTC.
Take a look.
Calculating in-hand salary from Cost to Company
Every working individual is well-versed about the term In-hand Salary, which is also called Take-home or Net Salary. Not many know that we can calculate the in-hand salary with the help of cost to the company.
Take a look:
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Calculate Gross Salary
Gross Salary = CTC – (Employee provident fund + Gratuity)
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Calculate Taxable Income
Taxable Income = Income (Gross Salary + Other Income) – Deductions
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Calculate Income Tax
Income Tax = one should check the tax slab in which he or she lies to understand his/her applicable Income Tax
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Calculate In-hand Salary
In-hand Salary = Basic Salary + Actual HRA + Special Allowances – Income Tax – EPF
Calculating gratuity in cost to company?
Every employee invests a large chunk of time and effort in the success of his or her company. For this dedication and hard work, employers provide every employee with a benefit known as gratuity.
Now, there are several eligibility criteria and conditions to get this benefit. According to the gratuity laws, the gratuity amount of an employee is calculated as 4.81 percent of the Basic Pay. Also, one of the vital rules of this well-known employee benefit is an employee can acquire after the successful completion of a minimum of five years in the same enterprise.
Let’s talk about the calculation.
Here is the easiest formula to calculate the gratuity amount of an employee with the help of cost to company:
Gratuity = 15/26 * Last withdrawn Salary (Basic Salary + Dearness Allowance) * Total no. of Completed Years of the employment period
Calculating gross salary from cost to company?
If Gross Salary is considered, it is the total of all the earnings, profits, interest payments, reimbursements, and other types of payment without any deductions.
Now, here is the basic formula to calculate your Gross Salary from cost to company:
Gross Salary = Cost To Company– (Employee Provident Fund + Gratuity)
Common Elements Included In Cost To Company
Now that you understood that CTC is the total amount of expenses a company/employer spends on an employee in a year, you should also know that different companies use different components in CTC. Some of them are as follows:
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IT companies usually add expenses related to training in the cost to company. Now, these expenses are incurred by an organization for training their employees.
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Banks use interest subsidies in the cost of company. That means an employee working in a bank will be entitled to a discounted rate on loans.
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Some companies even add performance bonuses to the cost to company. Some organizations also add the cost of group medical or life insurance.
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As mentioned earlier, gratuity is also added to the Cost to Company. Some organizations in India also use gratuity as part of the cost to company to pay an employee the proportionate amount as ex-gratia, in case he or she leaves the enterprise before finishing 5 years.
That’s it.
These are some vital information about CTC that every working individual should know about.
We hope this blog helped you to understand and learn more about CTC or cost to company.
Lastly, you can find a number of calculators, from the CTC calculator online to the CTC breakup calculator, on the internet today to make your CTC calculation easier and fast.
