The salary structure in India is most commonly referred to as “CTC,” i.e. Cost to Company. Entrepreneurs looking for global business expansion in India should take into consideration how the salary structure is defined and how it differs from the more popular term used internationally, i.e., “Gross Salary.” The difference between Gross Salary and CTC is that the latter is a better measure of the total cost towards an employee as it takes a holistic approach and is useful in ascertaining the actual cost of employment.
In this article, let us understand the term CTC.
CTC literally means the total cost of an employee to a Company for a year. It denotes the entire remuneration paid to an employee, split across various incentives and perquisites that may or may not be taxable in the hands of the employee.
Primarily, the CTC in India is divided into three main categories, viz.,
- Monetary Benefits
- Allowances
- Perquisites
- Retirement Benefits
- Monetary Benefits:
Monetary Benefits are those benefits that are other than allowances and are directly paid to an employee. These include Basic Pay, Bonus, Commission, and Incentives, etc. These benefits are fully taxable in the hands of the employee.
2. Allowances:
Allowances are indirect costs that are paid to an employee. These costs are further divided into two main categories viz., Personal and Duty Based. The difference between the two is that the former are partially exempt or fully taxable while the latter are exempt to the extent of the amount spent.
Personal allowances are House Rent Allowance, Transport Allowance, Children Education Allowance, and Hostel Expenditure Allowance and are partially exempt.
Other Allowances are Telephone or Telephone Facility, Tiffin, Medical Allowance, etc. which are fully taxable.
Duty Based allowances are the likes of Uniform Allowance, Helper Allowance, and Travelling Allowance which are exempt to the extent of the amount spent.
3. Perquisites:
Perquisites are benefits passed on to the employee which are divided into two categories, viz., tax-free and taxable of value.
Tax-free perquisites are Mediclaim insurance, electronic devices, telephone reimbursement or facility, meal (limited to Rs. 50 per day), and gift(s) up to Rs. 5,000 p.a.
Taxable Perquisites are those of a Motor Car facility, accommodation provided by the employer, and interest-free loans, etc.
4. Retirement Benefits:
Retirement benefits are those benefits that an employer pays on behalf of the employee that are accrued at the time of retirement. These benefits may be a Pension Fund, Leave Encashment, and contributions to Provident Funds. As is evident, the salary structure is quite comprehensive in India and this allows both employers and employees to plan a structure that is beneficial to both.
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