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In fact, using CTC in formulating a salary structure makes the compensation format more flexible and attractive for employees. In the CTC structure, the basic pay and Provident Fund form the fixed components of a salary; all other elements are flexible. This gives enough leeway to employees to pick and choose the benefits they desire.
The basic aim of using a CTC salary package is to provide a tax-efficient solution to employees. A savvy employee can opt for only those perks and extras in the package that will result in him paying a lower tax (although this might result in a slightly higher incidence of FBT or fringe benefit tax, as non-cash benefits are not taxable in the hands of the employee). Although some employers pass on the FBT burden (average 6.12% on certain reimbursements) to employees, opting for a CTC-based package still ends up being tax efficient. Employees can opt for retirement plans, saving plans, medical and life insurance. They can even choose a higher basic pay so that their PF contribution goes up accordingly.
With CTC-based packages, employees get a greater degree of control over their salary. One ends up receiving only allowances that one will actually be using. The trick to make the best of a CTC-based salary structure is to first clearly list out your shortand long-term financial needs. What works for your colleague may not be efficient for you. Sit with a financial planner and earmark your requirements in your salary structure. That’s what will make opting for CTC a financially savvy move.
— Subhash Lakhotia is Tax and investment consultant
