Cost to company (CTC) refers to the total salary package of an employee, including gross salary, allowances, and employer contributions to funds like PF. It does not equal take-home salary due to deductions. CTC is calculated as gross salary plus PF, gratuity, and other employer contributions. Key components that make up gross salary and are taxable include basic salary, DA, HRA, allowances, and bonuses. Deductions include income tax, employee contributions to PF, and other policies to arrive at net take-home salary. Form 16 issued by the employer provides details of income and taxes to file tax returns.

1. COMPONENTS OF
CTC AS PER
INCOME TAX ACT

2. COST TO COMPANY(CTC)
CTC or Cost to Company is the total amount that a company spends (directly or
indirectly) on an employee. It refers to the total salary package of the employee.
CTC is never equal to the amount of take-home salary of the employee.
CTC = Gross Salary + PF + Gratuity
BASIC SALARY
Basic salary is the base income of an individual. It is a fixed part of one's
compensation package. It is usually the largest component of the CTC making up 40-45%
of the total CTC. The basic plays an important role in defining the salary as other
components like Provident Fund, Gratuity and ESIC are dependent on it.

3. GROSS SALARY
Gross salary is the amount calculated by adding up one's basic salary and
allowances, before deduction of taxes and other deductions. It includes bonuses,
over-time pay, holiday pay, and other differentials.
• Gross Salary = Basic Salary + HRA + Other Allowances
NET SALARY OR TAKE-HOME SALARY
Net salary or take-home salary is obtained after deducting income tax at source
(TDS) and other deductions as per the relevant company policy.
• Net Salary = Basic Salary + HRA + Allowances - Income Tax - Employer's Provident
Fund - Professional Tax

4. Dearness Allowance is fully taxable and is a cost of living adjustment
allowance to mitigate the impact of inflation on people. It is paid to
Government employees, Public sector employees (PSU) and lately to private
sector employees too, Dearness Allowance is calculated as a percentage of a
basic salary
DEARNESS ALLOWANCE
PROVIDENT FUND
Employer has to contribute 13.36% (of Basic + DA & Food concession allowance & retaining
allowance, if any) towards PF deduction. It is divided as: Pension Fund: 8.33% Provident Fund:
3.67% Total : 12% Employee Deposit Linked Insurance (EDLI): 0.5% Administrative Charges
for PF Scheme: 0.85% Administrative Charges for EDLI Scheme: 0.01% All employees who earn
up to INR 15,000 are now mandatorily required to get enrolled as members of the EPF.
Employee Contribution = 12 % (of Basic + DA & Food concession allowance & retaining
allowance, if any)

5. HRA is given to meet the cost of a rented house taken by the employee for his stay. The Income Tax Act allows
minimum of the following 3 as deduction in respect of the HRA paid to employees. – Actual house rent allowance
received from your employer Actual house rent paid by you minus 10% of your basic salary 50% of your basic salary
if you live in a metro or 40% of your basic salary if you live in a non-metro Meaning of Salary for calculation the
exemption of HRA Salary means (Basic + D.A + Commission based on fixed percentage on turnover). Salary is to be
taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the
previous year.
HRA
PERQUISITE
Is any benefit or amenity granted or provided free of cost or at concessional rate such as Rent free
unfurnished house, Rent free furnished house, Motor car facility, Reimbursement of Gas, Electricity
& Water, Club facility, Domestic Servant Facility, Interest Subsidy on Loan , Reimbursement of
medical bills, Reimbursement of Hospital bills, Reimbursement of telephone bills, Benefits derived
by employee stock option, and so on.

6. STANDARD DEDUCTION
As per an amendment, tax exemption on medical reimbursement
amounting to Rs. 15,000 and transport allowance amounting to Rs.
19,200 in a financial year have been replaced with a standard
deduction of Rs. 50,000
TDS
Your employer deducts TDS on your salary based on the Income Tax Slab rates for the
financial year. If your income is more than Rs 2, 50,000 (the minimum amount which is
exempt under Income Tax), the employer has to deduct TDS on your Income. You can
choose to disclose all your Incomes like rent from house property, interest income from FDs
etc and employer will calculate and deduct TDS based on your total income. This saves you
the effort of paying taxes to the government yourself.

7. FORM 16
Form 16 is a document issued by employer to employee about salaries paid, Perquisites
offered, details of deductibles and TDS deducted pertaining to the previous financial
year. This is the basic document which is required by the employee to file income tax
returns because Form-16 contains income chargeable under the head “Salaries” which is
the taxable salary. The same needs to be indicated in Income Tax Returns. It is a
certificate stating the details of the salary employee have earned and the tax deducted on
their behalf and paid to the government.
LTA OR LEAVE TRAVELALLOWANCE
Employer provides LTA to employee for Employee’s travel to any place
in India alone or with their family. LTA exemption is limited to the
extent of actual travel costs incurred by the employee. LTA exemption
only in respect of two journeys performed in a block of four calendar
years. Travel has to be undertaken within India and overseas
destinations are not covered for the exemption

8. HRA CALCULATION
The minimum of the three amounts will be exempt from tax:
A. Actual HRA allowance in the salary package, that is Rs 96,000.
B. HRA received less 10 percent of salary and DA, that is 43,200 (96,000 – 10% of
528,000).
C. If you live in metropolitan (Delhi, Chennai, Bombay and Calcutta), 50 per cent of
salary and DA However, if you live in any other city, it is 40 per cent of salary + DA.
So, in this case it would be Rs 2,11,200 (40% of 528,000).
So HRA will be minimum of ( 96,000; 43,200; 2,11,200) which is 43,200 which will
be exempted. So the portion that will be taxed in this example is = 96,000 – 43,200 = 52,800.

9. IDEAL SALARY
STRUCTURE

10. Component Recommendation
Basic 40-50% of CTC
DA 5% of CTC
HRA 50% of Basic + DA if metro and 40% if non-metro
Conveyance ₹ 1,600 a month
Medical ₹ 1250 a month
LTA
No real benchmark, can even be used as a plug, but if not
can
set as 10% of Basic
ESIC (Employer Contribution) 4.75% of Gross Salary
ESIC (Employee Contribution) 1.75% of Gross Salary
Provident Fund (Employer)* 12% of Basic + DA
Provident Fund (Employee) 12% of Basic + DA
Professional Tax As per statewise slabs
Labour Welfare Fund As per state wise slabs

11. Net Income Income Tax Health and Education
Up to Rs. 2,50,000 Nil Nil
Rs. 2,50,001-Rs. 5,00,000 5% of total income 4% of income tax
Rs. 5,00,001-Rs. 10,00,000
Rs. 12,500 + 20% of
total income –
5 lakhs
4% of income tax
Above Rs. 10,00,000
Rs. 1,12,000 + 30% of
total income
– 10 lakhs
4% of income tax
TAX SLAB:

12. COMPONENTS OF SALARY AMOUNT TAX TAXABLE AMOUNT
Basic Salary 480,000 Full amount is taxable 4,80,000
DA 48,000
Depends on company policy.
Mostly fully taxable.
48,000
HRA 96,000
Applicable if living in a rented
house. Minimum of three
amounts (Note 1)
52,800
Conveyance Allowance 22,200
Conveyance allowance for up
to Rs.19,200 per annum is
exempt from tax i.e.22,200-
19,200=3000
3000
Entertainment Allowance 12,000 Fully taxable. 12,000
Overtime Allowance 12,000 Fully taxable 12,000
Medical Reimbursements 15,000
Exempt to a limit of Rs 15,000
annually
0
GROSS SALARY 6,75,000 Gross Taxable Salary 6,07,200

13. Tax 57,103
Employee PF contribution(12% of Basic) 57,600
Professional Tax 2400
Total Deductions 1,17,103
Net Salary = Gross Taxable Salary –Tax =6,07,200- 1,17,103=4,90,097
Net Monthly Salary =490097/12=40,841.41
TAX
CTC- 7,32,600
CTC CALCULATION