Cost to Company or CTC misleading term

CTC or Take Home

CTC or cost to company is often misleading term. Let me share with you recent incident. My friend got job in one very good MNC company. He got offer of 6 Lac as CTC (cost to company).  He was unable to control his happiness. He immediately joined this company. He got surprise after one month as his take home salary was very less compare to his CTC (cost to company).

This happens to many people today as people often get confused with Cost to company and Take home salary.

What is Cost to Company or CTC?

CTC is your cost to your company. Company spend money directly or indirectly on you apart from salary. So CTC is your monthly take home salary plus money spent on you by company.

Cost to Company = Monthly Salary + Additional amount spent by Company

In order to understand this in better way let us discuss what components make your CTC.

CTC (Cost to Company) Components

Before discussing your CTC components let us look at your salary components

  • Basic
  • Dearness Allowance
  • HRA
  • Conveyance Allowance
  • Education Allowance
  • Performance pay
  • Bonus
  • Medical Allowance
  • Washing Allowance
  • Telephone or Mobile Allowance
  • Leave Travel Allowance

All above component are part of your take home salary and CTC also. In other words total of all this components will make your salary.

Example

Let’s understand this using one example. Say your basic is Rs. 20,000 per month and DA is Rs. 6000 per month. Conveyance allowance is Rs.1000 per month and you are getting HRA of Rs. 7000 per month. So your overall salary package is 4.08 Lac per year.

Now let’s discuss about CTC components that actually inflate your CTC but may not be actually paid to you!

Bill Reimbursements

Bill reimbursement are part of your CTC package. This includes reimbursement of following:-

  • Telephone Bill
  • Medical Bills
  • Newspaper Bill
  • Magazine Subscription etc

Example

You are entitle to take medical bill reimbursement up to Rs. 20,000 per year. So, this Rs. 20,000 is considered as addition to your CTC.

Contribution to PF

It is mandatory to contribute PF 12% of your basic to provident fund (PF).  Contribution of your employer towards this is considered as addition to your CTC.

 This amount is not given to you every month but as company pay this money for you it is part of your CTC.

Example

12% of your basic is Rs. 2,400 per month.  So Rs. 28,800 per year is shown as additional amount to your CTC.

Gratuity

Gratuity is amount paid by company if you leave job after 5 years. Ideally Gratuity should not be part of your CTC but many company shows gratuity as part of CTC.

Health Insurance and Life Insurance

Some employer provides facility of free health insurance and life insurance to their employees and dependants. Premium amount which is paid by company on your behalf for this insurance can be included in your CTC package.

Transport Facilities

Companies may provide you free transport facility from your residence to work place. Cost of this free transport facility can be added in your CTC.

Canteen Food Facility

Companies may provide free or subsidies food facility to employees. Cost of this subsidy can be included in your CTC.

ESOP

Many company offers Employee Stock Option to employee. In this option company offers share at lower cost to employee. Many company add ESOP cost in CTC package.

Unrealistic or Fake Cost to Company Components

Let’s us look at some unrealistic CTC components. These components are unrealistic component which are not supposed to be added in CTC. But still some company does that.

Training Cost

Few companies offer good training to their employees as a part of joining but cost of this training they include in CTC which is wrong.

Office Phone Bill

Bill of office phone used by you can be included in your CTC.

Office Internet Connection Facility

Bill of Internet facility provided by company at office can be included in your CTC.

Office space rent

This is shocking it is found that many companies are adding office rent space in CTC.

Only Logic Company apply here is to show high CTC. So next time when you hear that someone from IIM got job with very high cost to company don’t be surprised, their large CTC may include many fake CTC component like office rent etc.

Hope I have cleared all your doubts related to HR Jargon Cost to Company.

Have you ever been to situation where company cheated you with fake CTC component?

Do share your experience with us!

Article by Raviraj

Hi, I am Raviraj. I am passionate about money matters and finance. I have 10 years of rich experience in the field of financial planning, Investments & Insurance. I have written 850+ article on this blog. If you like my efforts kindly subscribe to this blog and also let your friends know about this website by sharing.

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