CTC (Cost to Company)

What sits inside a CTC

CTC has three bands. The first is the employee's gross: basic, DA, HRA, special and other allowances. The second is employer statutory cost: 12% employer EPF and EPS on basic plus DA up to the ₹25,000 ceiling, EDLI and admin charges of 0.5% each, and 3.25% employer ESI where gross is up to ₹21,000. The third is provisions and benefits: gratuity at roughly 4.81% of basic, statutory bonus where applicable, group insurance, meal or transport benefits.

Some companies also load variable pay or a retention bonus into CTC. That inflates the headline number and is the main reason candidates feel their in-hand salary is far below what they were offered.

CTC versus gross versus net, in one line each

CTC is what the company spends. Gross is what the employee earns before deductions. Net is what the employee receives. The gap between CTC and gross is employer contributions and provisions; the gap between gross and net is employee deductions.

For payroll setup, the important discipline is to define CTC components in the salary master so that a change in the EPF ceiling or the ESI rate updates the employer cost automatically rather than being hand-adjusted in Excel.

• Employer EPF and EPS: 12% of basic plus DA up to ₹25,000 (from 17 Sep 2026)
• EDLI 0.5% and EPF admin 0.5% on the same wage base
• Employer ESI: 3.25% of gross where gross is up to ₹21,000
• Gratuity provision: (15 ÷ 26 ÷ 12) of basic plus DA, about 4.81%

Common structuring mistakes

Keeping basic low to reduce employer EPF no longer works the way it did. Under the Code on Wages, basic plus DA plus retaining allowance must be at least 50% of total remuneration; excluded allowances above that share are added back to wages for EPF and gratuity purposes. A ₹40,000 gross with ₹12,000 basic will be treated as having ₹20,000 in wages.

The other frequent error is quoting gratuity in CTC but not actually accruing it, then facing a lump-sum liability when a five-year employee resigns.