Due Diligence. What you see is not what you get in CTC

Shreyas was in a rather grumpy mood when he met Aadith, his best friend and a few years his senior, at the cafe. “Why so serious?” asked Aadith.

Shreyas replied: “Nothing to smile. I just got my first salary today. And the money is far lower than what I expected. When I got the appointment letter, the annual CTC was mentioned as ₹9 lakh. That’s 75 grand a month. Not bad, I thought, for a fresher. But the amount credited to my bank account today is only ₹55,000, that’s more than 25 per cent lower than what I thought I would get.”

Aadith, with some years of work experience, knew the reason for the gap. Smiling, he said, “Welcome to the corporate world, my friend. In this world, what you see is often not what you get.” An irate Shreyas cut him: “Care to explain?”

“Sure,” replied Aadith. “CTC is short for Cost to Company. And that’s exactly what it means — it is the sum which your company says it will spend on you. It is not the amount which the company has said it will pay you. Do you see the difference?” Shreyas fumed, “Not quite. Elaborate please.”

“Of course,” Aadith said gently. “First off, CTC is a pre-tax amount.

Hidden costs

Your take-home pay — the money you get in your bank account — is what you get after deduction of tax on salary. The tax can be 10-30 per cent of your salary, depending on how much your annual taxable income is. So the taxman takes a big bite off your monthly pay.

“Then, there are expenses and contributions your company incurs on you. These are not paid to you directly, but they do benefit you and so form part of the CTC.”

Intrigued, Shreyas asked, “What are you talking about?” Sensing a change in his friend’s mood, Aadith changed tack: “Did you check the offer letter before you signed on it? It would have saved you some angst today.”

Pressing on, he said: “Do check that and your payslip. It will likely show 12 per cent of your Basic Pay and Dearness Allowance being deducted towards Employees’ Provident Fund (EPF) contribution. The company also pays a similar amount towards your EPF though this is not reflected in your payslip. This benefit will help you build a good corpus for the future. The company includes its contribution towards EPF as part of the CTC, while your contribution is deducted from your monthly pay.”

“That’s not all.” Aadith continued, “If your company provides a group health insurance for employees, a pro-rata portion of the insurance premium may also be included in your CTC.

“Also, if there are day-to-day benefits that the company gives you in kind, such as free or subsidised food, transportation facilities, or food vouchers, these could form part of the CTC, though it will not reflect in your payslip.

“Then, there are reimbursements that the company may be giving you on medical, phone and fuel expenses if you submit bills — these could also form part of your CTC. So does the leave travel allowance that you may be getting on submission of travel bills or at the end of the year; some companies may be paying this monthly, too.

“Likewise, in the case of senior employees, if the employer provides perquisites such as accommodation and vehicle, that will form part of their CTC.”

With his anger dissipating, Shreyas, with folded hands, a bent neck and a smile, asked: “ Gurudev , is that all or are there more hidden gems?”

Added ‘bonus’

Aadith perked up: “The best is yet to come, shishya . Welcome that wonderful invention called variable pay, popularly known as bonus. Say, your offer letter mentions that at year-end, after performance appraisal, you would be paid up to ₹1 lakh as variable pay if — and this is a big ‘if’ — the performance is judged to be at 100 per cent levels. The performance is often based on not just how you did, but also on how your team and the company delivered. Now, this ₹1 lakh will form part of your CTC, whether or not you finally pocket the entire amount. Your actual bonus pay could be much lower than what’s on print.”

Shreyas protested, “But that’s not fair to high-performers, is it?” Aadith’s reply was pregnant with wisdom: “Without a doubt, shishya ; but such is life.”

Aadith continued: “Then, there is gratuity, a component of CTC that appears in the offer letters of many employees but is reserved only for the true loyals who stick on with the employer for at least five years. Quit before that and you don’t get a bite from the gratuity pie. Also, some companies include leave encashment as part of CTC. And some take such stretching to extreme lengths by including even training expenses as part of CTC.”

“So, is there any solution to get more in hand?” beseeched Shreyas.

“Yes,” replied Aadith. “First, always check your offer letter and get clarity on what’s included in the CTC and what’s not. Next, try to negotiate with the prospective employer to optimise the package by including more direct, regular, in-cash components instead of perks in kind. Try to reduce tax outgo to the extent possible. For instance, if you are paying rent, ask for a higher amount as House Rent Allowance to get tax breaks. Also, make tax-saving investments such as the ₹1.5 lakh under Section 80C and health insurance premiums — this can cut down the tax outgo and add to the take-home pay.”

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