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CTC – Understand What Is Cost to Company and How to Calculate It?

You have given quite a few job interviews and now you are waiting for a call. Luckily, you have been chosen by two companies. The HR manager of the first company says that your CTC would be 15 lakhs per annum and in hand, you would get 13 lakhs per annum. The HR manager of the other company is saying that your CTC would be 16 lakhs and in hand, you will get 12 lakhs. You are wondering what is the difference between the two and which company you should choose. Therefore you should know about their individual components and the method of their calculation. Today we shall try to enlighten you on this topic only. 

Components of CTC

The full form of CTC is “ Cost to the Company”. It means the total expenditure the company will have to incur per annum to keep you as an employee.

CTC = Direct Benefits + Indirect Benefits + future savings + Deductions made by the employer because of voluntary contributions of the employee but paid by the employer

Direct Benefits

(paid directly into the hands of the employee)

(Monetary benefits)

Indirect Benefits


(may/ may not be paid in the hand of the employee but expensed for his benefit)

(non monetary for the employee)

Future Savings 

(Contributions made by the employer, for the benefit of the employee)

Contributions of employee

(voluntary contributions of the employee but paid by the employer)

Basic salary Payment / Reimbursement of  Medical insurance Premium Employer’s Contribution to Superannuation Fund Employee’s Contribution to Superannuation Fund
Dearness Allowance Cab Facility Employer’s Contribution to NPS (National pension Scheme) Employee’s Contribution to

NPS (National pension Scheme)

Incentives or bonuses Provision of Furnished, Rent free Accommodation Payment to gratuity fund.(4.81% of basic + DA)
House rent Allowance Food Coupons Employer’s Contribution to Employee provident Fund Employee’s Contribution to Employee provident Fund
Leave Travel Allowance or Concession (LTA / LTC) Payment of Life  insurance Premium
Transport Allowance Membership of any club owned by employer/ Payment/reimbursement of Membership Fee paid for any club
City compensatory allowance Treatment in any hospital owned by employer/  Payment/reimbursement of expenses of treatment in a hospital
Medical allowance Free education provided to the children of employee
Telephone / Mobile Phone Allowance Stock options made available to Employee by Employer
Special Allowance Supply of gas, electric energy or water
Children Education Allowance Value of gift or voucher or token
Uniform allowance Credit card facility
Hostel Allowance Interest free/concessional loans
Overtime allowance Payment of professional tax
Books and periodicals allowance Value of free meals


The benefits received by the employee can be categorized in two types;

Direct Benefits: These are paid to the employee monthly, in hand i.e. they form part of his take-home pay after deducting income tax (TDS) and any state tax like Professional Tax. These benefits reach directly to the employee, hence the name Direct benefits. The employee has the liberty to take these benefits under various heads, to get exemptions and save income tax.

Indirect Benefits: (i) These benefits are also known as Perquisites in the taxation field. An employee enjoys these benefits without paying for them directly. But it does not mean that they are free for him. The payment of these expenses is made by the company. The actual monetary value of these expenses (or as considered actual by the company)  is added to the CTC of the employee. Since the payment of these benefits is made indirectly by the employee, hence they are called Indirect benefits. 

(ii) The actual monetary value is added to the CTC of the employee, but according to the Income tax act, each prerequisite has been defined and a method of calculating its taxable value is given. The amount calculated by these rules is less than its actual value. The employee takes these benefits indirectly to avail the benefit of a reduced amount being added to their taxable salary. Therefore we can say that the amount of taxable salary is much less than the CTC but it could be more than the salary received in hand.

(iii) The employee has the freedom to choose  his nonmonetary benefits and future savings apart from some mandatory expenses like employer’s contribution to EPF, ESI (if applicable), and TDS

Difference between CTC and take home salary

(i) Take home salary = CTC – Indirect benefits (including professional tax)  – Future savings – voluntary contributions of employee paid by the employer – TDS (income tax) 


Take home salary = Direct benefits – TDS – Professional tax

(ii) The difference between the CTC and take home salary arises due to the Non-monetary components, future savings, voluntary contributions of employees paid by the employer, and  TDS (income tax). 

(iii) These are basically the other benefits a company has given to its employee and are deducted while calculating the take away salary.

(iv) The gap between the CTC and take home salary is further broadened by TDS (Tax deductible at source) which is a mandatory deduction as per the statute. So, take home salary is  the amount which gets credited to your bank account at the end of each month 

Now we shall learn about each of them individually, along with their taxability in little detail 

Direct benefits

These are the monetary benefits.

(i) Basic salary- This is a part of the salary which forms the basis for the calculation of other allowances. This is fully taxable. This is like the foundation on which the entire building is built. Whenever you see an advertisement for a job the salary mentioned in it is always basic salary. All the other parts are dependent on it, as its percentage. Normally it forms 40% – 50% of the CTC.

(ii) Dearness Allowance- It is a percentage of basic salary. Its percentage is decided on the basis of inflation ( Consumer price index ). It is also fully taxable. Whenever there is a hike in basic salary, it is also increased accordingly. 

(iii) Incentives or bonuses – These are performance based emoluments. They are paid to the employees for their good efforts and to incentivize them for working more efficiently and producing better results. They  are fully taxable.

(iv) House rent allowance – If you are living in a rented accommodation, then you should take some amount under this head, as the least of the three is exempt.

  1. Actual HRA received
  2.  40% / 50% of salary (depending upon the city)
  3.  Rent paid- 10% of salary

If you live with your parents, then you can pay them the rent through the bank and obtain a receipt. Also, your parents should show that rental income in their return.

(v) Leave Travel Allowance or Concession (LTA / LTC)

If you travel with your family during vacations, then you can avail of this exemption, under leave travel allowance. This exemption is available only on the actual fare of rail, aeroplane or bus incurred by the employee. Any other expense made on local conveyance, sightseeing, hotel accommodation, food, etc., are not eligible for this exemption. The lower of the two shall be exempt;  

1) LTA provided by the employer.

2) According to the actual expenses incurred for travel by the employee or through the applicable amounts explained in the table below according to the mode of transport. 

For availing of this exemption, some conditions have to be fulfilled.

You can read the article,Best Salary Structure to Save Income Tax for knowing the 

other conditions.

(vi) Transport allowance or conveyance allowance- This allowance is provided to the employee to meet the expense of commuting to and fro between his residence and place of duty/ office. This is fully taxable from the financial year 2018-19. Its annual amount of exemption (19200/-) has been subsumed under the standard deduction available under the head salary.

(vii) Mobile/telephone allowance

It is an allowance given to meet the expenses on the residential landline phone,  broadband connection, and the mobile phone used by the employee

The amount of exemption will be lower of the two;

  1. Amount actually spent
  2. Amount of allowance received

(viii) Books and periodicals allowance

This allowance is received for having any subscriptions of books and periodicals 

The amount of exemption will be lower of the two;

  1. Amount actually spent
  2. Amount of allowance received

(ix) Children Education Allowance

This allowance is provided for the education of children of the employee.

The amount of exemption will be lower of the two;

  1. Rs 100/- per month per child. Restricted to two children i.e. Rs 1200/- per child per year
  2. Amount of allowance received

(x) Medical allowance 

It is just like a dearness allowance and is a part of the salary. It is fully taxable.

(xi) Uniform allowance

This allowance is given for the expenses incurred in purchasing and maintaining the uniform to be worn to the office. The amount of exemption will be lower of the two;

  1. Amount actually spent
  2. Amount of allowance received

(xii) Hostel Allowance

An exemption of up to Rs.300 per month per child for two children.

Note- Some allowances like medical allowance, City compensatory allowance, special allowance, incentives and bonus, overtime allowance are fully taxable like basic salary and D.A.

Indirect benefits

We shall see their amounts both from the CTC and taxability point of view.

(1) Payment/ reimbursement of medical Insurance premium

CTC- The amount paid or reimbursed by the employer shall be added to the CTC

Taxable amount –  If the medical insurance premium is paid by the employer its deduction benefit (sec 80D) will not be available to the employee. It will not be added to the taxable salary of the employee.

If the amount is reimbursed then it will be added to the taxable salary. It’s benefit under sec 80D will be available to the employee.

(2) Medical treatment paid/reimbursed by the employer. Medical treatment done in the hospital owned by the employer.

CTC- Actual amount spent by the employer shall be added to the CTC.

Taxable amount – The amount of reimbursement/ paid by the employer shall be fully taxable (If paid to other than the below listed hospitals). An annual exemption of 15000/- has been subsumed under the standard deduction available under the head salary.

The taxable value of perquisite in respect of medical facility provided by an employer in following hospitals/clinic is nil if the;

  • Hospital is owned and maintained by the employer
  • Hospital is maintained by Govt. or Local Authority or an Approved Hospital under CGHS
  • Medical facility like prescribed diseases / ailments in a hospital approved by Principal Chief Commissioner or Chief Commissioner of Income tax.

(3) Cab facility

CTC– Actual amount spent by the employer, or as determined by the employer.

Taxable amount- If the employer provides cab service to the employee for to and fro to the office. The value of the perquisite for the taxation purpose will be nil. 

(4) Provision of Furnished/ unfurnished, Rent free Accommodation

CTC-  Actual amount spent by the employer, or as determined by the employer.

Taxable amount-

(i) Value of unfurnished Rent free Accommodation for Private sector employees or other employees

  1. a) If it is owned by employer [salary = (Basic + DA)]
  • City having population upto 10 lakhs as per 2001 census – 5% of Salary (Basic + DA)
  • City having population exceeding 10 lakhs but upto 25 lakhs as per 2001 census – 10% of Salary
  • City having a population exceeding 25 lakhs as per 2001 census – 15% of Salary
  1. b) If taken on lease by the employer
  • Actual lease rent paid by the employer
  • 5% of Salary

Whichever is less will be taxable

(ii) Value of Furnished rent free accommodation

Value of Unfurnished accommodation and 

Add 10% per annum of the cost of the furniture, if the furniture is owned by the employer or actual rent of furniture.

(5) Food Coupons

CTC- The actual amount spent by the employer in procuring these coupons

Taxable amount-  Food coupons like “Sodexo” which can be used as payment at various food joints. Rs 50 per coupon for one meal. Total Rs 2200/- coupons per month are exempt ( 26400/- per annum ) 

(6) Payment/ reimbursement of Life insurance Premium

CTC- The actual amount spent by the employer for such premium 

Taxable amount- The amount of premium paid by the employer. Since the value is added to the gross salary, it will be eligible for deduction under sec 80 C.

(7) Membership of any recreational club (including health club) owned by the employer/Payment/reimbursement of Membership Fee for any recreational club (when incurred not for official purposes, i.e. for personal usage of employees)

CTC- Actual amount spent by the employer, or as determined by the employer. The amount so determined shall be reduced by the amount recovered from the employee for such benefit.

Taxable amount

If the club is not owned by the employer and this facility is extended to a few employees, then the total amount paid/ reimbursed is taxable. 

If this facility is extended to all the employees or the club is owned by the employer then the value of the perquisite will be nil.

Note –  Where the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household, the value of perquisite shall not include the initial fee paid for acquiring such corporate membership.

(8) Stock options made available to Employee by Employer (ESOPS)

(i) If we see in a facile manner, they are not a part of CTC because the employer is not adding anything in your payslip. Nor are they given in lieu of any direct benefit. You have to make the payment separately to the employer in order to acquire the shares at the time of exercising your right. But they become a taxable perquisite under the head ‘salary when they are exercised. And when they are liquidated, capital gains tax is levied on them. (all these happenings are dependent on many other conditions)

(ii) Under an ESOS, a company grants to its employees, options ( a right without any obligation) to acquire a certain number of shares in the company or its holding/subsidiary company at a predetermined price (exercise price) within a predetermined period (exercise period). This option to acquire shares can be exercised once the vesting conditions are fulfilled. The vesting conditions may be continued employment for a defined time, performance based, or both. Upon vesting, the employee gets an unrestricted right to ‘exercise’ the vested options by payment of the exercise price. 

In the case law of Tripti Sharma (Smt.), (2010) 1 ITR 471 it was held that conversion of share options into shares by exercising the right, is a benefit derived from the virtue of being employed in service. The difference between the predetermined exercise price and the fair market value of the share is a perquisite and taxable under salaries.

Taxable amount

At the time of exercise of option

Owing to the fact that they are a benefit arising out of the virtue of being an employee under a contract of service, hence they are taxable under the head ‘salaries’. Taxable value of perquisite = ( Fair Market Value – Exercise price ) * number of shares vested

(9) Supply of gas, electric energy or water by the employer / paid or reimbursed by the employer

CTC- The amount of expense for the employer will be added to the CTC. If paid or reimbursed then the amount charged by the providing company. If they are supplied by the employer from the facility owned by it, then costs to the employer.

Taxable amount

If paid or reimbursed then the amount charged by the providing company. If they are supplied by the employer from the facility owned by it, then cost to the employer.

(10) Value of gift or voucher or token

CTC – The monetary value of such gifts will be added to the CTC

Taxable amount

  • Gifts made in cash or convertible into money (like gift cheques) are not exempt. They are fully taxable.
  • Gifts in kind (non monetary) upto Rs. 5,000 in aggregate per annum would be exempt, beyond which it would be taxable.

(11) Credit card facility

CTC – The amount actually spent by the employer in paying/reimbursing for the payment of a credit card used by the employee for his personal purposes.

Taxable amount

The  taxable value of the perquisite in respect of facility of credit card is; 

Expenses incurred by the employer in respect of credit card used by employee / his household member

  • Less: Expenditure on use for official purposes
  • Less: Amount, if any, recovered from the employee

Expenses incurred means the amount of expenses + membership fees + annual fees for credit card, provided or otherwise paid or reimbursed by the employer.

(12) Interest free/concessional loans

CTC- Amount actually spent on interest by the employer reduced by the interest recovered from the employee.

Taxable amount

The taxable value of perquisite shall be;

Interest calculated at the rate charged by State Bank of India as on 1st day of previous year on loan for the same purpose. This is to be calculated on maximum outstanding monthly balance.

  • Less actual interest paid by the employee.

Exceptions ( Interest will not be taxed if 😉

  • Loan upto Rs. 20,000.
  • Loan for medical purposes for prescribed diseases

(13) Payment of professional tax

CTC– total amount paid by the employer.

Taxable amount- This is a state tax levied on professionals. The amount paid by the employer is first added under salary and then a deduction of the same is given under sec 16.

(14) Value of free meals

CTC– The amount actually spent by the employer or as determined by the employer.

Taxable amount – The taxable value of the perquisite shall be;

  • The value of free meals provided by the employer is taxable to the extent cost incurred by the employer as reduced by the amount recovered from the employee
  • Free food and non-alcoholic beverages provided by employer during working hours at office or business premises or through paid vouchers whose cost per meal is more than 50. It implies if the cost of a single meal is more than 50, then an amount exceeding 50 is taxable.

(15) Free education provided to the children of employee

CTC – Actual amount spent by the employer or as determined by the employer.

Taxable amount- School fees of the family members of the employees, paid/reimbursed by the employer are taxable as a perquisite in all cases. ( where a school is not owned by the employer)


  • If the education of the children of the employee is done in the school run by the employer and the cost of education or value of such benefit does not exceed Rs. 1,000 per month per child (no restriction on number of children) then the whole fee is exempt. 
  • If the cost of education or value of such a benefit in such a school exceeds 1000 per month per child, then that amount is reduced by 1000, and any recovery from the employee, shall be the taxable value of the perquisite.
  • This amount will be a part of the CTC of the employee but will not be considered for taxation purposes. 

Future savings

Employer’s contribution to the superannuation fund recognized provident fund ( mandatory), and National pension Scheme, all these are made by the employer for the future benefit of the employee. Contribution to the Recognized provident Fund is mandatory, but other contributions are optional. The employer makes them only on the direction of the employee. The employee does so, in order to get tax benefits. It reduces his tax burden but also reduces his take home salary. Therefore it depends upon him, how to take his salary from the employer.

Deductions made by the employer because of voluntary contributions of the employee but paid by the employer

Apart from the employer’s contribution, the employee can also voluntarily make some contributions to these future saving schemes. If the employee’s contribution amount is paid by the employer then that amount is deducted from his takeaway salary. It is also at the option of the employee. He can make his own choice. It reduces his tax burden but also reduces his take home salary. 


(A) CTC is not defined in any Indian law

The concept of cost to the company is not defined in any law. It is a dynamic term that varies from company to company. Sometimes it may be misleading also. As some companies include the amount of stock options or even the rent of the cubicle in which you are going to work into your CTC. Therefore it becomes very important to deeply consider their components and amounts. They are different in each company, according to its internal policy.

(B) What is the status of Gratuity? Is it a part of CTC or not?

Gratuity is paid to the employee in recognition of his long and meritorious services. The gratuity is an amount paid out of gratitude ( gratuitously, without any counter consideration). This concept was given a legal framework by the Payment of Gratuity Act, 1972. Under this act, payment of gratuity is mandatory. Gratuity is payable to an employee on termination of employment after he has rendered continuous service for a minimum of 5 years in a single organisation.

Ideally, this amount should not be added to your CTC, because it’s a mandatory requirement and you are uncertain about completing 5 years of service in the company. There may be the following  scenarios;

(i) The company deducts about 4.81% of your salary  (basis+DA) towards a gratuity fund. That fund is utilised to pay gratuity to the employee at the time of his retirement/ termination ( at least after 5 years of service). The company considers such annual deduction as a part of your CTC. It may be possible that you may resign/terminate your service before 5 years. Then you are not eligible for gratuity, but the company has deducted a part of your salary. Therefore you should get that deducted amount back as an ex-gratia payment. 

(ii) If you complete your 5 years of service, and then get your gratuity, then it should not be included in that year’s CTC, although it is received in that year because the amount was being deducted from your CTC in the past years.

(ii) Suppose the company does not deduct any amount from your salary towards the gratuity fund. It is not a part of your CTC. You resign after completing 5 years of service, then you receive an amount as gratuity. You can understand that with the help of the following concepts namely;

(iii) Current CTC and Deferred CTC

It may be assumed that your annual CTC is the current CTC and a separate amount is your deferred CTC, which would become receivable after fulfillment of any condition. It may be disclosed at the time of joining the service. Therefore gratuity is that part of deferred CTC.

(iv) Internal CTC (known only to the employer) and CTC disclosed to the employee.

It can also be assumed that the company discloses the annual CTC to the employee at the time of appointment. But it also makes a separate head of expense for its internal accounting which is not disclosed to the employee. This amount is also expensed for the benefit of the employee but does not form part of the contract. Since payment of gratuity is mandatory, it can be construed that it is an implied contract, which is not expressed.

(v) Annual CTC and Termination Benefits

The company makes a distinction between Annual CTC and Service Termination benefits. Therefore we can assume that gratuity is not a part of CTC from the starting and it is a benefit covered under a special category of service termination benefits.

(vi) Fixed and Variable CTC

The predetermined value of annual CTC can be termed as Fixed CTC. Some emoluments such as incentives and bonuses, leave encashment, etc., are dependent upon the performance of the employee or his leaves availed. Therefore their method of calculation can be disclosed to the employee but not any fixed amount. There may be any upper limits restricting the benefit to a certain level, such a benefit can be provided under Variable CTC.

(C) Are Leave encashment, VRS a part of CTC or not?

Leave encashment is a monetary emolument received by the employee in lieu of the leaves entitled to him but not availed by him. Therefore it is paid against some extra work done by the employee. Hence it is not a part of the current CTC.It can be considered as a part of internal CTC or termination benefits. But some employers play a trick on the gullible employee to include the payment of leave encashment in the annual fixed CTC. It can be considered as a part of variable CTC.

In the case of Bharat Earth Movers vs Commissioner Of Income Tax, on 9 August 2000 it was held that Leave encashment is an accrued liability. The making of a provision for meeting such an expense was a legitimate expenditure. An accrued liability would not be converted into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one. It was always open to the tax authorities concerned to make a proper estimate of the liability having regard to all the circumstances of the case. The appellant is entitled to a deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability.

VRS is an amount received for voluntary retirement taken by the employee in lieu of balance years of service. It can be taken as a part of termination benefits.

(D) What is the Advance salary, and pension received by the employee? 

If any employee takes any advance from the employer, then it is a part of the current CTC, as it is adjusted in the future from the salary.

Pension is paid to the employee after his retirement. For that purpose, an amount is deducted from the annual salary to form a corpus. That can be in the form of provident funds, pension schemes, etc. Employer’s and employee contributions both are part of the current CTC. Therefore pension will not be termed as CTC as it is already provided for by the employee.

Some case laws related to taxability of components CTC

(A) Vijay Singh, 323 ITR 446.

Interest free security is given to a landlord for taking an apartment on rent. In the present case, the employer had paid an interest free amount as security to a  landlord to rent an apartment for the employee. The employer was also paying monthly rent for that accommodation. The Assessing Officer was of the opinion that the notional interest on that security amount should also be added to the amount of rent to reach the value of the perquisite. But it was held that the amount of perquisite would be the rent only. The same was also confirmed in the case of  CIT v. Shankar Krishnan, 207 Taxman 233 (Bom) (High Court). 

(B) CIT v Micro Land Limited, 323 ITR 670 Kar. 

The court held that Attire Allowance or Uniform allowance was exempt, upto the amount used for the purpose of uniforms.

(C)  IREL (INDIA) Limited vs P. N. Raghava Panicker WP(C).No.2254 OF 2020(F)

The Court held that a trainee is not excluded from the definition of the term ’employee’ under the Gratuity Act, but only an ‘apprentice’ is excluded. 

Section 2(e) of the Payment of Gratuity Act, 1972 defines an “employee” which excludes only an apprentice. The Act says “employee means any person (other than an apprentice).” Therefore a trainee is eligible for gratuity if other conditions are fulfilled.

(D) Regional Provident fund Commissioner v. The Regional Labour Commissioner and others (1985 II labour Law Journal 63)

An upper divisional clerk working in the establishment of Regional Provident fund Commissioner resigned from his job after completing 9 years of continuous service. It was held that said establishment falls in the ambit of the Gratuity Act and he could not be denied gratuity because of the fact that he has resigned himself.

(E) CIT V Larsen & Toubro Limited, 313 ITR 1 SC., CIT Vs. ITI Ltd. [2009] 18 DTR 162 (SC) and CIT Vs. Semiconductor Complex Ltd. [2007] 208 CTR 462 (P&H) : 292 ITR 636 (P&H).

In all these cases it was held that the employer is under no obligation to collect and examine the supporting documents, relating to the declaration furnished by the employee( for availing exemption u/s 10(5)) with respect to leave travel allowance/ concession, for the purpose of deducting TDS. Also, in the decisions of the ITAT, Kolkata Bench in the case of Saptarshi Ghosh and decision of the Mumbai Bench of the ITAT in the case of Madanlal Mohanlal Narang wherein it was held that the revenue officer cannot call for details of expenditure incurred unless the allowance paid per diem is disproportionately high compared to the salary received or with regard to the duties performed by the employee.

(F) Gopal Krishan Singhania v/s CIT

The assessee is a director in Raymond Woollen Mills Ltd. He has been provided with furnished rent free accommodation from the company. The AO included the value of such a perquisite in his salary income and it was upheld in the appellate tribunal. 

(G) WNS Global Services (P) Ltd., 33 SOT 445.

The court held that Pick-up and drop facility to employees between the specified points is not a perquisite.

(H) CIT v Wipro Systems, 325 ITR 234. 

It was held that the facility of club membership should be considered as a perquisite.

Transocean Discover LLC v ACIT, 6 Delhi – ITAT, Mitsubishi Corporation v CIT, 200 Taxman 372 and Isaco Sakai v. Jt. CIT, 49 SOT 154 (Delhi)(Trib.).

The tribunal ruled that, if any tax is borne by the employer on the value of perquisite enjoyed by the employee, then it will also be a perquisite and not a monetary benefit. It will be exempt u/s 10(10CC)

(I) All India Punjab National Bank Officers Association vs. Chairman-cum-Managing Director, Punjab

In this case, it was held that, wherever any loan was granted by an employer at a rate of interest less than the lending rate of State Bank of India, such a loan is to be regarded as a concessional loan and consequently, the amount of interest calculated as per the difference of rate of interest would be the value of taxable perquisite.

(J) M. Venkata Subbaiah vs. ITO, 47 DTR 403 (Visakha)(Trib.).

 In this case, it was held that remunerations received by the MLAs and MPs cannot be taxed under the head income from salary but can only be taxed under the head income from other sources

(K) CIT v ITC Ltd ( 2011) 59 DTR 312 ( Delhi) (High Court).  

The assessee had paid some tips to its employees working in its restaurants and banquets in the capacity of an employer. It was held that such payment constituted a salary within the meaning of section 15 read with section 17 (3). The Assessee was considered as assessee in default for non deduction of tax at source on account of such payments made by it. It was made liable to the levy of interest under section 201 (IA).

(L) CIT .v. Subrata Roy, 219

In this case, the assessee, who was a director in the company was doing some official work from his residence and he claimed the expenses paid to the sweeper, gardener, watchman of his rent free accommodation provided by the company as office maintenance expenses. The court held that these expenses were perquisite in the hands of the assessee since there was no office in the residence of the assessee. The court remarked that doing work from home and maintaining the office were two totally different things and they cannot be equated. The value of perquisite received by the assessee from the company in which he was a director could not be considered to be used for official purposes. Therefore, the same was taxable in the hands of the assessee as a perquisite.

(M) Rule 3 for perquisite valuation according to Income tax Act

(3) The value of the benefit to the employee or any member of his household resulting from the provision by the employer of services of a sweeper, a gardener, a watchman or a personal attendant, shall be the actual cost to the employer.

(N) CIT v . Shankar Krishnan, 349 ITR 685

In this case, it was held that the valuation of rent free accommodation should be as per rule 3 (actual amount spent by the employer) and no notional rent should be computed in this regard. 

(O) Scott R. Bayman v. CIT, 76 DTR 113 (Delhi)(High Court),

According to the judgment in this case, if the expenditure on the repair of the house occupied by the employee was borne by the employer then its perquisite value should be computed as per rule 3.

(P)  CIT (TDS) v. Oil and Natural Gas Corporation (India) Ltd, 358 ITR 131

The honorable court held that reimbursement to the employee towards travelling & conveyance expenses towards business is not salary income for the employee.

(Q) The Commissioner Of Income Tax (Tds) vs M/S American Express Bank Ltd on 21 December 2011

In this case, the assessee had made reimbursements to its employees on account of watchmen, gardeners, sweepers, etc., engaged by the employees of the assessee, out of their own funds. The court held that the assessee was ‘Assessee in default ‘ for not deducting TDS on the said amount. It imposed interest on the assessee u/s 201(1A), but did not impose any penalty as it held that the assessee had acted in a bonafide manner.

(R) Sudip Rungta v. DCIT – [2020]  (Kolkata – Trib.)

In this case, it was held that the ‘performance bonus’ received by the employee was not eligible for including in the salary for making the calculation for exemption for HRA u/s 10(13A) since performance bonus doesn’t form part of the salary defined under rule 2A(h) for the purpose of section 10(13A).


You can see that CTC is a very wide term, having many interpretations and has many components. There are also disputes regarding some emoluments being part of it or not. Therefore you should be very careful while signing any service contract and should make every effort to understand each and every component and its true nature. 

Moreover, you should make a clear demarcation between official and personal work while receiving any perquisite or reimbursement. If you use the income tax laws wisely in respect of the perquisites then you can get a lot of benefits and reduce your tax burden simultaneously. 

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