All You Wanted To Know Abt CTC in India

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01-29-2009 05:++ AN
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All you wanted to know abt CTC in India
Came across this article in ibn ,
I have never understood my payslip till date, says Avni
Rustagi, a native of Punjab. Avni, 25, moved to Bangalore
four years back in the hope of turning her dream into reality.
To make her dream a reality, she has been working as a
designer with an Information Technology firm ever since.
Avni pays Rs 10,000 as rent for a spacious apartment, but
ask her about how she manages her other expenses and she
throws her hands up in the air. "Numbers scare me, she
admits. "I dont know a thing about finances.
She says, "For instance, I dont even understand my pay
structure or CTC as it is called, what I get in hand or why I
get that much.
Wealth realised that Avnis dilemma is a common problem
with most working people. The transformation from CTC to
take home leaves mostly everyone confused. Lets decode
and understand what happens when CTC becomes take
home.
What is CTC?
CTC is nothing but the cost that the company incurs to
employ you and keep you employed. It includes your pay and
anything else that the company may incur to keep you in
employment. Here is Avnis CTC or Cost to Company.
Particulars
Rs (per annum)
Basic
480,000
Dearness allowance
48,000
Entertainment allowance
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2 oI 14 7/9/2011 10:41 AM
12,000
House Rent allowance
96,000
Conveyance allowance
12,000
Overtime allowance
12,000
Medical Reimbursement
15,000
Gross Salary
675,000
Company's Contribution to Provident Fund
57,600
Annual CTC
732,600
Monthly CTC
61,050
Avnis salary package is quite transparent. However, each
company has its own method of calculating CTC. Companies
may offer an attractive CTC pay structure but the take home
may be substantially lower. Here are some components that
are commonly used in the CTC:
1. IT companies often add training costs in the CTC. These
costs are incurred by the company for training the
employees. So, naturally these do not come in the form of
take home.
2. Banks include interest subsidies in CTC. That is, if you are
a bank employee, you are entitled to a discounted rate on
loans.
3. Performance bonuses are also included in the CTC. These
are variable components and you will be paid out a
percentage of the bonus depending on your performance.
4. Companies may include the cost of group medical or life
insurance. Some companies may add food subsidies, that is,
you may be getting a subsidy on your lunch in the office
canteen.
5. Some companies include gratuity in the CTC. Gratuity is a
sort of bonus that is paid out when you resign or retire from
your company. The catch: You are entitled to gratuity only
after completing 5 years in the company.
What is the difference between CTC and take home?
As you probably gauged, CTC is not the same as take home.
Your take home is always lower than your CTC. Besides
examples mentioned above, there are two major components
that eat into the CTC. They are:
1. Tax liability
The company calculates your tax and deducts it every month
from your CTC. This includes income tax as well as
professional tax.
2. Contribution to PF
3 oI 14 7/9/2011 10:41 AM
Here is the confusing part. Provident fund contribution has
two sides - the employers contribution and employees
contribution. The employers contribution is included in the
CTC as it is a cost that the company incurs to employ you.
This is usually 12 per cent of the basic salary. However, this
contribution is not paid out to you monthly. It is directly
deposited in your PF account and paid to you when you
retire or resign.
There is also employees contribution to PF. This amount
(usually 12 per cent of the basic salary) is deducted from
your monthly salary and deposited in your PF account.
Now let us calculate how Avnis CTC becomes her take home.
Step 1: Calculate tax:
Particulars
Taxable amount
(see notes below)
Basic
480,000 (1)
Dearness allowance
48,000 (2)
Entertainment allowance
12,000 (3)
House Rent allowance
58,200 (4)
Conveyance allowance
2,400 (5)
Overtime allowance
12,000 (6)
Medical Reimbursement
Nil (7)
Gross Taxable Salary
607,200
Tax
86,685 (8)
Net annual salary
205,155
Net monthly salary
43,376
Notes on tax calculation:
Lets look at it step by step.
1. Basic salary is fully taxable under Section 17 of the
Income Tax Act, ie in Avnis case Rs 40,000 is fully taxable.
2. Your Dearness Allowance and overtime allowance are fully
taxable.
3. The taxability of entertainment allowance depends on the
4 oI 14 7/9/2011 10:41 AM
company policy. In Avnis case, this is wholly taxable.
However, in some companies, entertainment allowances
become tax free if bills are submitted to the extent that
these expenses were used towards office purposes.
4. House Rent Allowance (HRA) exemption is applicable only
if you are living in a rented house and not in your own
house. HRA calculation in Avnis case is as follows:
The minimum of the three amounts will be exempt from tax:
a. Actual HRA allowance in the salary package, that is Rs
96,000
OR
b. HRA received less 10 per cent of salary and DA, that is
43,200 (96,000 - 10 per cent of 528,000)
OR
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 Avnis case it would be Rs 211,200 (40 per cent of
528,000)
The least amount of the three would be Rs 43,200, which is
exempt. That means the actual taxable amount would be
Rs 96,000 (less) Rs 43,200 = Rs 52,800
5. Conveyance allowance of Rs 9,600 per annum is
exempted from tax. So, in Avnis case Rs 2,400 will be
subjected to tax. Again, this is according to her company
policy. In some companies, if the balance is used for official
purposes, the amount becomes tax free.
6. Overtime allowance is fully taxable.
7. Medical reimbursements, if substantiated with bills, are
exempt to a limit of Rs 15,000 annually. So, Avni can
produce medical bills for a maximum of Rs 15,000 to her
employer. If you are allotted a annual medical
reimbursement of Rs 20,000, Rs 15,000 would be tax
exempt if you submit bills, which means youd have to pay
tax on the remaining amount of Rs 5,000.
Some other allowances and reimbursements which may be
part of your package are food coupons (sodexho, ticket
restaurant), phone reimbursements, books and periodical
reimbursements etc. The taxation of this would depend on
your company policy.
8. Avni falls in the highest tax bracket. This tax amount
includes education cess too. Of course, this calculation is
done assuming that Avni does not make any tax saving
investments. If she invests the maximum permissible limit of
Rs 1 lakh, her tax comes down to Rs 55,785.
Step 2: Deduct provident fund and professional tax
Out of the CTC, employers contribution to PF will not be
included in the take home, as discussed earlier. Employees
contribution, that is Avnis contribution would have to be
deducted.
Avnis monthly take home would be:
Net monthly salary (post income tax) Rs 43376
less Avnis contribution to provident fund Rs 4,800
less Professional tax Rs 200
Monthly take home Rs 38,376
So while Avni's monthly CTC was Rs 61,050, her take
home is just Rs 38,376
How can Avni increase her take home?
5 oI 14 7/9/2011 10:41 AM
Avni can plan her taxes and increase her take home. If Avni
invests Rs 1 lakh (the limit under section 80 C) in tax saving
instruments like PPF, ELSS etc, her annual tax comes down
to Rs 55,785.
607,200
Tax
55,785
Net annual salary
551,415
Net monthly salary
45,951
/HVV Pf contribution
4,800
/HVV Professional tax
200
Monthly take home
40,951
It is also important that while she changes jobs, she should
take some time to understand the package offered to her to
ensure that the CTC is friendly and ensures maximum take
home.
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01-29-2009 06:35 AN
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CTC is India is a way to make a fool of employees /hoodwink them. The best way for employees is if they
can negotiate for a TDS deduction. In that case the employee will just have a 10.5% deduction in Avni's
case the take home pay will be 61,050-10.5%(of 61050)
Their is no PF/no gratuity and no headaches for the company either.
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01-29-2009 10:5/ AN
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Thank you msmile: mteeth:
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Monthly Take Home 40,951 - (100,000/12-4800) to account for additional contribution under 80C.
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Originally Posted by arundc
Monthly take home
40,951
.
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Take Home will be as above but she still has to pay taxes. If she is not an employee she has to pay
service tax in addition, and is not able to take advantage of tax-free perks.
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Originally Posted by Rajahindustani
CTC is !ndia is a way to make a fool of employees /hoodwink them. The best way for employees is if they
can negotiate for a TDS deduction. !n that case the employee will just have a 10.5 deduction in Avni's
case the take home pay will be 61,050-10.5(of 61050)
Their is no PF/no gratuity and no headaches for the company either.
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01-30-2009 05:22 AN
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To Rajahindustani,
I didnt grasp how TDS applies and why it would give Avni more take home.
The real take home is everything minus tax (33% approx) & pf.
It would be foolish to get company to deduct 10.5% and think that rest is for keeps. At the end of the
year, you will have to just hand over the entire month's pay to IT dept and essentially run on empty.
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7 oI 14 7/9/2011 10:41 AM
Ha ha! Tax free perks, well, here in India companies will have a LTA of say Rs 40,000 and they will ask
you to produce receipts of your travel and avail 5 days leave.
The way this (does not ) works is that due to projects you seldom get leave easily of continous 5 days
and if you do not produce travel tickets you are forced to not take LTA.
Similarly medical bills.
In short CTC is just a way to make a fool of employees.
People who are on contract are better off.
Needless to say their is hardly any loyalty in India and attrition rates are high.
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01-30-2009 10:09 PN
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Shouldn't Net annual salary be calculated as 520,515?
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Originally Posted by arundc
607,200
Tax
S6,6S5 (S}
Net annual salary
205,155
Net monthly salary
43,376
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01-31-2009 0/:2+ AN
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Between 1968 and 1978, I took my holidays and LTA every year. One year, it was scheduled to start in
the last week of March, and I was asked to postpone it as something important was expected. I agreed
with the proviso that the company(IBM) pickup the resultant tax. They backed off and I went on my
holidays. Though on another occasion, they did call me back, but paid my return fare to enable me to
continue my holidays.
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Ha ha! Tax free perks, well, here in !ndia companies will have a LTA of say Rs +0,000 and they will ask you
to produce receipts of your travel and avail 5 days leave.
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8 oI 14 7/9/2011 10:41 AM
Dbs sir, I just sent you a private message.
regards
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01-31-2009 02:2/ PN
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Now, you don't need proof to claim LTA, conveyance
http://economictimes.indiatimes.com/...ow/4044623.cms
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Ha ha! Tax free perks, well, here in !ndia companies will have a LTA of say Rs +0,000 and they will ask you
to produce receipts of your travel and avail 5 days leave.
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Court just said that employer is not legally required to collect proof/copies of receipt/tickets
So employers may just ask for a declaration that you incurred the expense to determine if tax need to be
withheld.
If you claim that you incurred the expense while claiming LTA, you are still legally obligated to retain
receipts/proof of this expense if you are audited by Income tax.
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Originally Posted by Indian.Sam
Now, you don't need proof to claim LTA, conveyance
http://economictimes.indiatimes.com/...ow/+0++623.cms
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02-11-2009 01:+3 PN
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9 oI 14 7/9/2011 10:41 AM
In a new development , I have successfully persuaded my company to change my employment from
being on a permanent position (whatever that means!) to a contractual one (retainer).
This has caused my take home pay to shoot up. The earlier CTC that they are offering is the same but
without PF, medical, HRA etc.I believe I will be better off. On top of that by being on site I am eligible for
free housing, and subsidized food and free vehicle and free hotel stay. Besides I am not taking
advantages of company arranged train reservations and an accountant of the company is a buddy of mine
and he has agreed to giv eme travel advances. Accounts in India is another black hole.
In India people better get used to these things and it took me 3 years to figure out this CTC fooling
around game.Earlier I was eligible for a post retirement pension/superannuation scheme. This would
have taken effect after 26 years. well! who knows what will happen in the next 26 years, and so I am
glad I am on a retainership.
The only drawback that i see is that I will not be eligible for medicaid besides making an impression that I
will not stay with the company for long term (but who in India stays with employers for long term
anyway)
The bottomline is that you need to standup for yourself in India. Do not be fooled by CTC. It might as
well mean Cost to conceal in India.
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02-11-2009 0/:55 PN
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Nice informative thread.
If one has a choice of getting paid from US or from the Indian subsidiary (captive) of the same company,
which one would be better at the end of the day for take home pay?
This is for USC living in India. Overall CTC would be same in either case.
I can think of medicare and social security taxes being burden for getting paid from US.
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"If one has a choice of getting paid from US or from the Indian subsidiary (captive) of the
same company, which one would be better at the end of the day for take home pay?"
I would go for getting paid by the indian subsidiary. On top of that if given a choice, I would opt for a
contractual employment or retainership. Say if the US salary is $5000 per month and they are offering
the same in India.
Being in indian currency and on a contract basis the salary would be
Rs 5000x49=245000 per month. A TDS on the above amount would be
25725. take home pay would be=245000-25725= rs219275
Any other option would just complicate matters and reduce take home pay.When dealing with indian
conditions it is like- A bird in hand is worth two in the bush.
you need to have a deeeeeeeeeeeeeeep mistrust of indian employers and their motives.
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10 oI 14 7/9/2011 10:41 AM
02-15-2009 12:38 PN
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When I negotiated my pay (now I think I could have done better), I had run my after-tax cost of living
calculations, and used that number as a reference. I went on to tell them that 'X' is the basic pay I need,
you guys can work your numbers around this.
My pay structure is very simplistic (as an employee, not as a contractor):
Basic + Special Allowance + LTA+ Medical + HRA + PF= Amount A (say)
So, my take home was actually a little higher than what I had calculated.
I am very often asked what my CTC is- I have no idea about that.
If I count the following in my CTC calcs (conservative number)
a. The cost of laptop+ cell phone + internet card
b. Mileage reimbursement @ Rs. Y/km (this has been discontinued as of January 2009)
c.License fees for software (AutoCAD, web based project management programs)
d. Training fees (we are required to attend certain minimum number of training sessions per year). Last
year they sponsored professional certification exams, flew out a few people to Singapore. I was to be on
the list this year- but with cost cutting, this might be a no-go.
e. Medical insurance- so far, 100 % of the premium is paid by the employer. This might change
f. Inter-office correspondence (yes, in my industry, we still deal with a lot of paperwork, often by courier)
g. Other factors - annual employee gathering, business cards, rental on my deskspace at the office (even
if I go to the project site), etc.
I think now my CTC works out to twice the amount A.
I had a feeling that allowances, etc. can always be cut back- this might impact the cost of living. I am
glad that they have cut back several allowances, but my take home has stayed intact so far. the downside
is that I am paying a LOT more in taxes compared to a lot of people. Need to find a good CA to change
that :-)
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It all depends on the credibilty of your employer. offshore vp's/ceo's can get very uncomfortable with one
off deals for relocating US workers. It happened to me, when I relocated to India and after 8 months,
those folks asked me to take a pay-cut. I said I would rather quit, which I did. At that time the difference
between Indian and US salaries was quite large. I guess now that difference has reduced so that problem
could go away. However if there is a big disparity of wages between you and some other co-workers,
some people wont take it kindly
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Thanks for the words of caution. If I choose this path, I would be at the top of food chain in the India
office, so no hassle of dealing with anyone higher up over there. Also, the pay of the next in line wouldn't
be more than 25% lesser.
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Originally Posted by sftrade
!t all depends on the credibilty of your employer. offshore vp's/ceo's can get very uncomfortable with one off
deals for relocating US workers. !t happened to me, when ! relocated to !ndia and after 8 months, those
folks asked me to take a pay-cut. ! said ! would rather quit, which ! did.
11 oI 14 7/9/2011 10:41 AM
RH - I punched in some numbers taking up a hypothetical 2.5L pm salary (all inclusive).
I used this online India income tax calculator available (8 years old, so let's give 3% error margin for
2009-10 year).
http://tax.indiainfo.com/taxcalculator/calculator.html
Data Input: (All figures in rupees per annum)
Gross Salary (Basic + HRA + CCA + Special Allowance) - 30,00,000
Employee's Provident Fund - 9360
HRA received - 6,00,000 (20% of gross)
Actual Rent Paid - 3,00,000
Professional Tax - 2400
LIC Premium - 2,25,000
Investment in NSC/Tax Free Bonds - 0 (I believe USCs are not eligible)
Interest paid on House Loans - 4,03,000
LIC premium was computed using LIC's calculator for Jeewan Surabhi at:
http://www.licindia.com/premium_calculator.htm
Home improvement EMI was computed using:
http://www.hdfc.com/applications/calc_emi.asp
Taxes: (All figures in rupees per annum)
Gross Salary (A) - 30,00,000
LESS : Total deduction (u/s 16 incl. Standard Deduction and Professional Tax) (B) - 2,400
LESS : Other deductions (u/s 80) (C) - 0
TAXABLE INCOME (D) = A-(B+C) - 29,97,600
Tax (E) - 8,73,280
LESS : Rebate (u/s 88)(F) - 12,000
NET TAX (G) = E-F - 8,61,280
Surcharge (H) - 86,128
TOTAL TAX PAYABLE (I) = G+H - 9,47,408
Hence the actual monthly take home would be Rs.171049 for a salary of Rs.250000. This is if one is an
employee. I am sure, the CAs could work out HRA, coupons, vehicle allowance and other options to may
be bring down the tax. But I doubt if they can bring it by another 1L per year.
In your contract case it is Rs.219275. The difference is Rs.48225 per month which will add up to
Rs.578708 ($11810) per year. Would you mind explaining the computation difference between a full
term employment (case I have shown above) v/s contract employment?
Keep in mind there are pluses for keeping a full time employment due to PF employer match,
medical/disability/life insurance coverages, yearly raise (guaranteed pretty much if the comp is doing
good), yearly bonus and maybe a few more. All those benefits add up, particularly medical coverage for
parents (we have it in our captive center).
Thanks
-T
Keep Smiling!
! would go for getting paid by the indian subsidiary. On top of that if given a choice, ! would opt for a
contractual employment or retainership. Say if the US salary is $5000 per month and they are offering the
same in !ndia.
Being in indian currency and on a contract basis the salary would be
Rs 5000x+9=2+5000 per month. A TDS on the above amount would be
25/25. take home pay would be=2+5000-25/25= rs2192/5
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I found this tax calculation spreadsheet to be pretty accurate and has a lot more knobs to play around.
Check it for yourselves.
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12 oI 14 7/9/2011 10:41 AM
!BN GBS !ndia ] PLease evaluate my package
http://ynithya.com/taxcalc/
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"Would you mind explaining the computation difference between a full term employment (case
I have shown above) v/s contract employment?
In contractual agreement you will not technically be an employee but just a contractor working for the
company to finish the project for a fixed length of time. At the end of that time period our contract would
have to be renewed. You may also chose to quit.Generally the notice period is also shorter. You are not
entiled to any sort of benefits. So basically you are on your own.
Keep in mind there are pluses for keeping a full time employment due to PF employer match,
medical/disability/life insurance coverages, yearly raise (guaranteed pretty much if the comp
is doing good), yearly bonus and maybe a few more. All those benefits add up, particularly
medical coverage for parents (we have it in our captive center)"
Yes the benefits are their theoretically but in India HR policies are not implimented properly. I will give
you my example. I was eligible for a medical card which the interviewer showed to me. Even after
completing 8 months in the job I have not seen that card. I had an accident last november and although
I was entitled for some benefit, nothing came of it. I had to pay all bills myself out of my own pocket. The
good thing is that being in India , medical care is cheap. I was treated in ER of Paras hospital in Gurgaon
(one of the top hospitals) for Rs 150 as ER fee +1000 for X-ray+ Rs 500 for some dressings/injection.
The employer could not provide me help when I needed. So I said to myself "hell with such an
employer/such benefits scheme" which could not take care of me when I needed it.
Their is PF contribution by employer but an equal amount is deducted from your paycheck as well. In
India it is a pain to transfer PF and people seldom are sticking to one job.
For Indian conditions it is better to pocket the higher paycheck. You can take charge of your own savings
instead of a PF account. For eg you can sign up for along term ELSS (Equity Linked savings Scheme)
(ULIPs) with tax breaks for deposits and totally taxfree withdrawal. Such schemes also have very good
insurance covers. Or you can set up a ECS scheme so that a fixed amount goes to say PPF account.
I have seen more people lose income when they quit. Gratuity and superannuation are only paid if you
stay for more than 5 years. In these cases people are better of being on a higher takehome paycheque.
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