Are you confused about what is CTC? Many job seekers struggle to understand this term when evaluating salary offers.
CTC, or Cost to Company, includes more than your take-home pay.
But what really goes into it? How to Calculate CTC correctly can help you make smarter career and financial decisions!
What is CTC?
CTC, or Cost to Company, is the total amount your employer spends on you annually.
It includes your take-home salary plus all benefits like health insurance, retirement contributions, and bonuses. Think of it as the full package, not just what hits your bank account.
When comparing job offers, look at CTC to understand the complete value of what you’re being offered beyond just the monthly salary.
What does CTC include?
A typical CTC includes several components:
- Basic Salary: Usually 40-50% of CTC and forms the core of your earnings
- House Rent Allowance (HRA): Helps with accommodation expenses, typically 40-50% of basic salary
- Dearness Allowance (DA): Adjustment for inflation in some organizations
- Special Allowances: Flexible components that may include transport, food, and other benefits
- Retirement Benefits:
- Provident Fund (PF): Employer’s contribution to your retirement
- Gratuity: Long-term benefit paid after 5+ years of service
- Medical Insurance: Health coverage premiums paid by employer
- Performance Bonuses: Variable pay based on individual or company performance
- Leave Travel Allowance (LTA): Travel expense reimbursement
- Stock Options: Shares or options offered as incentives (in some companies)
- Other Benefits: Training allowances, phone/internet reimbursements, meal vouchers
Your take-home salary is typically lower than the CTC because some components are paid directly to other entities (like PF) or are reimbursement-based.
SAMPLE SALARY SLIP
Employee Name: Priya Sharma
Employee ID: EMP2025001
Designation: Software Engineer (Fresher)
Department: Technology
Pay Period: February 2025
Bank Account: XXXX1234
EARNINGS (MONTHLY)
- Basic Salary: ₹16,667
- House Rent Allowance (HRA): ₹8,333
- Conveyance Allowance: ₹1,600
- Medical Allowance: ₹1,250
- Special Allowance: ₹4,250
- Gross Earnings: ₹32,100
DEDUCTIONS (MONTHLY)
- Provident Fund (Employee Contribution): ₹2,000
- Professional Tax: ₹200
- Income Tax (TDS): ₹900
- Total Deductions: ₹3,100
SALARY SUMMARY
- Gross Earnings: ₹32,100
- Total Deductions: ₹3,100
- Net Pay (Take-home Salary): ₹29,000
ANNUAL CTC BREAKUP
- Gross Salary: ₹3,85,200
- Employer PF Contribution: ₹14,800
- Cost to Company (CTC): ₹4,00,000
📌 Note: This is a sample salary breakup, and actual components may vary based on company policies and regulations.
How to calculate CTC?
This is how all the components will look like in a salary slip. Using this example we will answer your query ‘How to calculate CTC?’
For a CTC of INR 6,00,000:
1. Basic Salary: 50% of fixed components (80% of CTC) = 50% × 80% × 6,00,000 = INR 2,40,000 annually (INR 20,000 monthly)
2. HRA: 50% of Basic Salary = 50% × 2,40,000 = INR 1,20,000 annually (INR 10,000 monthly)
3. Other Allowances: INR 1,20,000 annually (INR 10,000 monthly)
4. Performance Bonus: 10% of CTC = 10% × 6,00,000 = INR 60,000 annually
5. Employer PF: 12% of Basic Salary = 12% × 2,40,000 = INR 28,800 annually (INR 2,400 monthly)
6. Gratuity: 4.81% of Basic Salary = 4.81% × 2,40,000 = INR 11,544 annually
7. Health Insurance: INR 19,656 annually
8. Monthly Gross Salary: = (2,40,000 + 1,20,000 + 1,20,000) ÷ 12 = INR 40,000
9. Monthly Take-home (after PF, PT, and estimated tax): = Monthly Gross – (2,400 + 200 + 2,900) = INR 34,500 (approx.)
10. Verification: = (4,80,000 + 60,000 + 60,000) = INR 6,00,000 ✓
📌 Note: This is a sample salary breakup, and actual components may vary based on company policies and regulations.
Step 1: Identify All Components of CTC
List all components that make up your total CTC package. This includes Fixed & Variable components and Employer Benefits & Contributions.
Want to know more about the salary components? Read our article on Salary Breakup Explained!
Step 2: Calculate Each Component
Basic Salary
- Typically 40-50% of fixed components
- Usually specified directly in your offer letter
House Rent Allowance (HRA)
- Typically 40-50% of Basic Salary
- Formula: Basic Salary × (40% to 50%)
Allowances
- Listed directly in your offer letter or salary structure
Employer’s PF Contribution
- Formula: Basic Salary × 12%
- Note: There may be a cap on the contribution amount
Gratuity
- Formula: (Basic Salary + DA) × 4.81%
- Alternative formula: (Basic Salary/26) × 15 × years of service ÷ 12
- For CTC calculation purposes, this is typically calculated annually
Insurance Premiums
- The actual premium amount paid by employer
Variable Pay
- As mentioned in your offer letter (typically a percentage of CTC)
Step 3: Sum All Components
Add all calculated components to get your total CTC:
Total CTC = Sum of all Fixed Components + Sum of all Variable Components + Sum of all Employer Contributions & Benefits
Step 4: Calculate Monthly and In-hand Salary
Monthly CTC
- Formula: Annual CTC ÷ 12
Monthly Gross Salary
- Formula: Monthly CTC – Monthly Employer Contributions & Benefits
Monthly Take-home/In-hand Salary
- Formula: Monthly Gross Salary – Deductions
- Deductions include:
- Employee PF contribution (12% of Basic Salary)
- Professional Tax (varies by state)
- Income Tax/TDS (based on income tax slab)
- Health Insurance (employee contribution if any)
How to calculate CTC for Freshers
As freshers, we all pulled our hair tryingto make sense of our first salary breakup.
In this section, we will make it easy for you as we take you through how to calculate CTC of INR 2,00,000;
Step 1: Calculate Fixed Components (80% of CTC)
- Basic Salary (50% of Fixed Components): ₹80,000 per year (₹6,667 per month)
- House Rent Allowance (HRA): ₹40,000 per year (₹3,333 per month)
- Other Allowances (Transport, Medical, Special): ₹40,000 per year (₹3,333 per month)
- Total Fixed Salary: ₹1,60,000 per year (₹13,333 per month)
Step 2: Calculate Variable Components (12% of CTC)
- Performance Bonus: ₹24,000 per year
Step 3: Add Employer Benefits (8% of CTC)
- Employer Provident Fund (PF) Contribution: ₹9,600 per year
- Gratuity: ₹3,848 per year
- Health Insurance Premium: ₹2,552 per year
- Total Employer Benefits: ₹16,000 per year
Step 4: Final CTC Calculation
- Fixed Salary: ₹1,60,000 per year
- Performance Bonus: ₹24,000 per year
- Employer Benefits: ₹16,000 per year
- Total CTC: ₹2,00,000 per year
📌 Note: This is a sample salary breakup, and actual components may vary based on company policies and regulations.
How to calculate CTC for Mid-Level Professional
In this section, we will help you calculate CTC of INR 9,00,000;
Step 1: Understand the fixed components (typically 75-80% of CTC)
- Basic Salary = 50% of fixed components = 50% × 80% × 9,00,000 = INR 3,60,000 per year (INR 30,000 monthly)
- HRA = 50% of Basic Salary = INR 1,80,000 per year (INR 15,000 monthly)
- Other Allowances (Transport, Medical, Special) = INR 1,80,000 per year (INR 15,000 monthly)
Step 2: Calculate variable components (typically 10-15% of CTC)
- Performance Bonus = 12% of CTC = INR 1,08,000 per year
Step 3: Add employer benefits (typically 8-10% of CTC)
- Employer PF Contribution = 12% of Basic Salary = INR 43,200 per year
- Gratuity = INR 17,316 per year (formula: Basic Salary × 4.81%)
- Health Insurance Premium = INR 11,484 per year
Final CTC Calculation:
CTC = (3,60,000 + 1,80,000 + 1,80,000) + 1,08,000 + (43,200 + 17,316 + 11,484)
CTC = 7,20,000 + 1,08,000 + 72,000
CTC = INR 9,00,000
Note: This is a sample salary breakup, and actual components may vary based on company policies and regulations.
Quick Formulas to Remember
Here are some quick formulas for you to remember whenever you worry about how to calculate CTC.
- Monthly Gross Salary = CTC ÷ 12 – (Monthly Employer PF + Gratuity + Insurance)
- Take-home Salary = Monthly Gross Salary – Deductions
- Where Deductions = Employee PF + Professional Tax + Income Tax
- Annual In-hand Salary = Take-home Salary × 12
Important Points to Note
Here are some important points to remember about calculating CTC;
- Basic Salary typically ranges from 40-50% of fixed components
- HRA is usually 40-50% of Basic Salary
- PF Contribution is calculated as 12% of Basic Salary (both employee and employer)
- Tax calculations will vary based on your tax regime choice (old vs new)
- Gratuity is payable only after 5 years of continuous service
Common Mistakes to Avoid While Calculating CTC
After covering everything about how to calculate CTC, let’s look at the mistakes to avoid when doing so;
- Confusing CTC with in-hand salary: Your monthly take-home will be 60-70% of monthly CTC
- Ignoring variable components: Performance bonuses may not be guaranteed
- Overlooking tax implications: Higher CTC might push you into a higher tax bracket
- Not considering benefits value: Health insurance has real value even if not paid to you directly
What is the difference between Gross salary & CTC?
Now that we have covered on how to calculate CTC, let’s understand the basic difference between Gross salary and CTC;
| Gross Salary | CTC |
|---|---|
| The amount you see on your monthly pay slip before deductions | The total annual expense your employer spends on you |
| Includes basic salary, HRA, and all direct allowances | Includes gross salary PLUS employer contributions and benefits |
| Does NOT include employer’s PF, gratuity, or insurance premiums | Includes employer’s PF contribution, gratuity, insurance premiums |
| Directly paid to you every month | Some components aren’t paid directly to you |
| Used to calculate your income tax liability | Used in job offers and compensation discussions |
| What banks consider for loan applications | Usually 15-30% higher than your gross salary |
| What you actually receive before tax deductions | Includes future/potential payments like variable bonuses |
| Typically ranges from 70-85% of your total CTC | The complete package including all direct and indirect benefits |
Understanding what is CTC? helps you evaluate your total salary package, including benefits and deductions.
By learning how to calculate CTC, you can make informed career and financial decisions.
Always review salary components carefully to ensure clarity on your earnings, deductions, and take-home pay before accepting a job offer.
If you still feel nervous about calculating your CTC, you can check out AmbitionBox’s Salary Calculator.
