Understanding different components of your CTC

CTC stands for cost to company. It is always important for a job seeker to understand the difference between CTC and take home salary.

Cost to company ot CTC means the total cost that company will incur by employing you. It includes all benefit that company will provide whether monetary or non monetary. To attract candidates, these companies will always add all components to your salary for showing you a higher amount. By understanding different components of your CTC you can negotiate with HR team for a better pay package.

Cost To Company will have two major components, one is the fixed and the other one is variable portion which will vary from year to year.

Fixed Part of your CTC

Fixed portion of Cost To Company or CTC will be the amount that you will get irrespective of the CTC – Understanding different components of your CTCcompany’s profit or market conditions. Followings are different components of fixed part of your CTC;

  • Basic Salary – Actual Pay for your services
  • Dearness Allowance – Paid to compensate the rising cost of your living based on the location of your employment.
  • House rent Allowance – Based on your city of employment this amount would have been fixed for meeting your house rent expenses.
  • Conveyance Allowance – Paid to commute between your office and Home
  • Meals Coupon – Paid to provide you subsidised lunch either in their cafeteria or some other place during office hour
  • Mobile Bills reimbursement – Based on your call details its reimbursed to you
  • Medical Reimbursement – Will be paid based on your bill for medicine or treatment
  • Provident Fund – contribution by employee and employer to PF fund which employee will be getting at the time of retirement
  • Gratuity – it’s a retirement benefit paid by employer to you. You will not get this amount unless you complete 5 years of service in that company
  • LTA – cost of travel anywhere in India can be reimbursed to you by your employer.
  • Contribution to Insurance and pension – Premium amount paid by employer on your behalf to ensure your life or family member’s life or your health and your family’s health.

Variable Part of Your Salary

CTC – Understanding different components of your CTCVariable part depends on the performance of your organization, your year end rating and other factors like your units performance in comparison to your organization overall performance.

To me variable part of a salary is always a question mark as you never know whether you will get it or not. Followings are different components for your variable part of CTC;

  • Annual Bonus – Based on company’s performance, at the year end this portion will be fixed for you.
  • Performance bonus – Based on your overall performance, your manager will decide the amount for you.

Many companies in India do not pay 100% of their variable portion that they use to mention in Cost To Company. If you are getting an offer with CTC components in it then try to find out those amounts which are variable or based on future uncertainties and then compare the balance figure with your current fixed CTC or market CTC.

At the year end if you are getting a hike on it then it does not mean that you are getting a hike on your take home pay. First you need to look into the components of your Cost To Company offer and try to understand it. If you are getting an offer from a new employer then until the acceptance of your job, salary negotiation window will be open. Be ready with your points to get the components of your CTC clarified with them. You need to negotiate these factors before you joined in.

Editorial Staff at Yourfinancebook is a team of finance professionals. The team has more than a decade experience in taxation and personal finance.