Saturday, April 4, 2015

How to Understand CTC

Have you any detail idea about CTC.Do you know how to understand CTC.Yes CTC.CTC is a most important and popular word for every employee.CTC mean Cost to Company or in simple sentence what company incurs to employ any employee.So every employee should know CTC very well before appearing for negotiation with company at the time of job interview whether for fresh candidate or experienced ,otherwise you will be in loss.I have also face the same problem.So I search in web and learned about CTC in details so that it don't happen next time in my life.Here I am also describe my knowledge about CTC in simple words so that you don't lose a single penny what I have lost.

How To Understand CTC

Here I am explaining CTC in the form of a simple example of my friend Lokenath. Lokenath joined a construction company with more than five year experience.But before joining the company when he go for salary negotiation at the time of interview he asked for a minimum 10% hike.Company show him a attractive and well formed CTC of around Rs.5,50,000.He thought it is enough than he expected as he was not aware about the details of CTC and he agreed with them.But when he got his first salary in hand he saw it was only 5% more than previously he got.So he asked to his HR to explain in detail about the CTC breakup.CTC

So you can understand why we should know CTC in more detail to avoid such cases.Here we will now discuss about the components of CTC.

CTC Components :

Every company have different CTC components.They always make CTC with many attractive components to boost moral of employees and also to retain them in company.Main thing of CTC components are that those are two types firstly some are taxable and others are tax exempted mean you need not to pay income tax for those money.

  • Fixed Components :

  1. Basic Salary : Basic salary is the main component of your salary which one is paid for your service.It is totally taxable amount.

  2. Dearness Allowance (DA): Dearness Allowance is generally paid for increase of cost.Many company do not pay this component.This is taxable amount.

  3. House Rent Allowance (HRA) : This is paid as your house rent where you are staying.This is tax exempted.Here is a little calculation of HRA you should know that.HRA would be 50% (For Metro City) or 40% (Other than Metro City) of your salary (Only Basic and DA) .

  4. Conveyance Allowance :Conveyance allowance is for conveying from your home to office.It has a certain amount limit.It is also tax exempted.

  • Reimbursable Components :

  1. Medical Bill Reimbursement : Medical Bill Reimbursement is for bill paid for medicines or for medical treatment.Many company paid monthly and some other paid yearly.On case of tax up to Rs. 15000 will be tax exempted if you produce original bill otherwise it will be totally taxable.

  2. Telephone Bill Reimbursement : Company paid telephone bill for official communication purpose over phone.This is also reimbursable amount.You have to pay first and when you produce bills to company ,company will pay.It is also a taxable component.

  3. Food Bill Reimbursement :Many company paid money for food ,many company also give food coupon.So you can also reimburse your money if already paid for it.

  • Retirement Components :

  1. Provident Fund (PF) :Company deduct 12% of your basic for provident fund and same amount of money also paid by company which may include in your CTC.But this is for your retirement saving purpose,you can not withdraw your PF otherwise you leave company .It will be paid at the time of your retirement.Govt. will give a cumulative interest on your PF amount.It is tax exempted.

  2. Gratuity :Gratuity is a hidden money in CTC.Actually gratuity will be paid only if you continue your job more than 5 year in a single company.So you not eligible for this money if you left job before 5 year.

Read How to check Provident Fund (PF) account balance Online

  • Other Allowances :

  1. Leave Travel Allowance (LTA)  :Leave Travel Allowance (LTA) has been paid yearly.It has been paid for traveling yearly  with your families. LTA is a taxable component but if you can produce original travel bills like train tickets,airplane ticket then the amount will be tax exempted.

  2. Medical Allowance & Health Insurance:Medical expenses paid by some companies to their employees and their families.That can be trough any health insurance company or by direct company.It is included in CTC.

  3. Extra Allowances: Excluding the all above some company also provides electricity bill,furniture bill and other.This is also a part of CTC.

  • Performance Bonus :

Every company paid a part of its profit to employee as a Performance Linked Reward (PLR) to increase their productivity.This is always vary every year on company's financial year performance.This is huge amount which is a uncertain amount included in your CTC.You may got a large amount or may be less.

So those all above are included in CTC.I think now you are much better position about understanding your own CTC.

Read Easy Steps to Open a Recurring Deposit on SBI
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  1. Pretty comprehensive post detailing everything...Thank you!

  2. Thanks Alok.I read your about me page.It is good that you have decide to write a blog inspired by your wife.Its nice.Continue writing with good article.