What is CTC (Cost to Company)? Definition & Guide | TMS

How the Labour Codes changed CTC structuring from 2026

CTC design in India was rewritten by the four Labour Codes, in force since 21 November 2025 with final central rules notified in May 2026. The Codes introduce a single statutory definition of "wages" — broadly basic pay plus dearness allowance — and a cap on how much of total remuneration can sit in excluded allowances. Where allowances exceed that permitted share, the excess is added back and treated as wages for calculating provident fund, gratuity and related benefits.

The practical consequence: the old tactic of keeping basic pay low and loading CTC with special allowances to suppress statutory contributions no longer works. For many employers this raises the employer-side cost of the same headline CTC, because PF and gratuity provisioning now run on a larger base. For employees it can trim monthly take-home while increasing retirement savings. Any CTC structure designed before the transition should be re-tested — the TMS PF calculator and gratuity calculator show the effect of a revised wage base in minutes, and structures must still clear the applicable floor in the state-wise minimum wage tracker.

CTC, gross, net and take-home: the four numbers in every offer

Salary confusion in India almost always comes from mixing up four related but different figures. Keep them straight and every offer letter becomes readable:

Term	What it includes	Who it matters to
CTC (cost to company)	Everything the employer spends: fixed pay, allowances, employer PF and ESI contributions, gratuity provisioning, insurance premiums, variable pay	Employer budgeting; the headline negotiation number
Gross salary	CTC minus employer-side contributions and provisions; the earnings shown on the payslip before deductions	Basis for most statutory calculations
Net salary	Gross minus employee-side statutory deductions (PF, ESI, professional tax) and income tax	What is actually payable for the month
Take-home / in-hand	Net salary after any voluntary deductions such as loan EMIs or extra insurance	What lands in the bank account

To convert any CTC into a realistic monthly figure under both tax regimes, use the TMS CTC to take-home calculator — it applies the current statutory rules, verified by the TMS compliance team, rather than rough percentages.

What CTC still does not capture: the employer's true cost of hiring

Business owners budgeting a new role should know that CTC understates the real cost of employment. Items that commonly sit outside the CTC figure include recruitment and onboarding costs, statutory add-ons such as labour welfare fund contributions in applicable states, bonus obligations under the Social Security Code, leave encashment liability that accrues silently, employer compliance and payroll administration overheads, and workspace, equipment and training. A sensible planning rule is to budget meaningfully above CTC for the first year of any hire.

Foreign companies evaluating Indian talent face the reverse problem: candidates negotiate in CTC, a construct that has no direct equivalent in most other markets, and the split between cash and deferred components is easy to misread. An employer of record in India resolves this by owning the compliant salary structuring, contributions and payslips locally, while for project-based or deputed staff contract staffing moves the entire employment cost onto a single predictable invoice.

Frequently asked questions

What is the difference between CTC and in-hand salary?

CTC is the employer's total annual spend on an employee, including contributions and provisions the employee never sees in cash, such as employer PF and gratuity provisioning. In-hand salary is the monthly amount credited to the bank account after all employer-side items are excluded and employee-side deductions and income tax are subtracted. The gap widens as CTC rises, mainly because of income tax.

Is gratuity part of CTC?

Most Indian employers include gratuity provisioning as a CTC component, and it is a legitimate cost of employment. But it is a deferred benefit — payable only when the employee meets the qualifying service condition under the Social Security Code. Candidates comparing offers should treat gratuity and employer PF as savings, not spendable salary.

Does CTC include employer PF contribution?

Yes. The employer's provident fund contribution is part of CTC but is deposited directly into the employee's EPF account, never paid as cash. The employee's own matching contribution is additionally deducted from gross salary — which is why PF affects both sides of the CTC-to-take-home journey.

How do I calculate take-home salary from CTC?

Strip out employer-side contributions and provisions to reach gross salary, then subtract employee PF, ESI where applicable, professional tax for your state, and income tax under your chosen regime. Since April 2026 income tax runs under the Income Tax Act, 2025, so older online calculators may be out of date — the TMS CTC to take-home calculator reflects the current framework.

What is a good basic salary percentage in CTC?

Basic pay of around 40–50% of CTC remains the common convention, and the Labour Codes' wage definition now effectively enforces a substantial wages share by adding excess allowances back into the statutory base. Structures with unusually low basic pay are the first thing inspectors and auditors now examine.

Designing or reviewing salary structures for your team? Talk to TMS for compliant, tax-efficient CTC structuring backed by two decades of Indian payroll practice.