Salary Structuring, Taxability, and CTC

Cost to Company (CTC) is the total cost that your Company is spending towards you either directly or indirectly. CTC include the amount given to you in hand plus the amounts spend towards you. So, if you are getting CTC salary package it means it is a total salary package, including your benefits and perks. Your CTC Salary might sound substantial, but when the benefits are excluded, may look at times thin.

Usual components of your in – Hand Salary – include basic salary, Dearness Allowance (DA), medical benefits, vehicle and/or maintenance, telephone expenses, leave travel benefits, incentives and bonuses, other annual/periodic payments if any, etc.

All the above are a component of your in-hand salary, and therefore, are a part of your CTC pay as well. For example, if your basic salary is Rs 10,000 per month, DA is Rs 4000 per month and you get conveyance allowance of Rs 800 per month. So, your package so far is Rs 177,600 per year.

Now, there are some of the other components of your CTC pay which increase your CTC salary package but may not be actually given to you. Some of these CTC components are as follows:

• Company’s contribution to Provident Fund (PF)- It is mandatory for you to contribute 12% of your basic towards provident fund (PF) and your employer makes an equal contribution (12% of your basic) to your PF account. This amount is not given to you every month but as it is paid towards you, it forms a part of your CTC package.
• Reimbursement of Medical bills Phone bills etc. also form part of your CTC package.
• Premium paid by the employer on Life Insurance and Health insurance of employee also form part of your CTC package as the employer is paying premium on behalf of you.
• Cost of facilities provided by the employer to you like Medical Facilities, transport facilities etc. is added to your CTC package.

Further, the tax incidence of above items on employees and employer would depend the way the salary structuring is done. This fact puts more stress on the point that individuals (employees) as well as employers should be careful in formulating tax efficient salary structuring both from the perspective of the employee and employers.
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