Back when I started working in the private sector, the biggest question I had was whether gratuity was part of my CTC. Most employees, whether in the government, public sector, or private companies, often ask the same thing.
The answer is actually simpler than it seems—gratuity and CTC are separate. Your Cost to Company (or CTC) includes all the payments and benefits offered by the company, like bonuses and monthly perks, but gratuity stands alone. It’s only paid by the company when you’ve completed at least 5 years of service.
I still remember reviewing my offer letter and noticing how CTC was calculated—no mention of gratuity funds. That’s because gratuity is a reward for completing long-term service, and it’s handled separately from what you get each month in your salary.
So, while it’s deeply tied to your employment, it’s not bundled into your CTC. If you take a detailed look into any offer letter or HR policy, you’ll find that the topic is clearly outlined once you know where to look.
Checkout: gratuity calculator UAE
What does CTC Mean?
When I first heard the term CTC, I didn’t realize it was just an acronym for Cost to Company. It simply means the total compensation a company pays its employees over one year. The structure sounded confusing at first, but once I joined a firm and got my offer explained, I understood how it works.
Your CTC is usually calculated by adding all the additional benefits to your total salary. It includes both monetary and non-monetary salary components, especially as defined under the Indian Payroll System. This is where the confusion with gratuity comes in.
The gratuity amount is often figured as a portion of your basic salary and can sometimes be shown as a part of the CTC, especially as a perk for long-term employees. However, not every company treats it the same way—some list it separately, others include it. I’ve seen both in my career, and it really depends on how transparently your employer structures the offer.
Read More: How to Calculate Jafza Gratuity
What are the Basic Components of CTC?
Typically, the full CTC value is determined using these listed components:
Direct Benefits
From my experience working in HR for a mid-sized firm, I’ve seen how direct benefits are paid to employees every month along with their salary. These benefits form the regular part of your income and are essential for managing day-to-day expenses.
The basic salary of an employee is the foundation of these benefits, which also include several allowances such as Medical, House Rent, Transportation, Leave & Travel (LTA), and Dearness allowance (DA). These components vary from company to company, but they usually make up a significant part of your CTC breakdown.
Indirect Incentives
In my early career, I was surprised to learn that many employees get certain perks from the company without making any direct investment. These are not visible like monthly pay but still carry significant monetary value, contributing silently to your overall CTC amount.
The payment for these incentives is done indirectly, which is why they’re known as indirect benefits. Some of these hidden gems include Tax Savings, Loan Schemes, Life Insurance, Leased Accommodation, and Company-sponsored food plans. These are often overlooked, but once you calculate them, you’ll see how they really enhance the total worth of your compensation package.
End-of-Service Benefits
Covers gratuity and provident fund and these perks are given to the employee upon completion of his contract.
Is Gratuity Considered Part of CTC in 2025? What is Gratuity Percentage in CTC?
During my time working with HR teams under Indian Employment rules, I came to know that gratuity is considered a legal right of an employee. It’s usually not a part of CTC and is calculated apart from the monthly pay. But around 2000, some companies began adding gratuity into the CTC package to boost employee retention rate. This made sense from a policy standpoint even if it wasn’t traditionally followed.
Now, including gratuity in CTC isn’t a violation of any law, legally or morally, especially when the employee hasn’t made a financial contribution to the working organization. I’ve reviewed cases where companies added it transparently, and it did help reduce turnover.
In fact, the total gratuity is compulsory for Private Limited Companies in India under the Company Act. Since gratuity payment is only given once employees complete 5 years of job with an organization, it’s usually not included in CTC from the beginning of the appointment.
For instance, your hiring company may deduct 4.81% of your salary as a gratuity fund, payable at the end of your service tenure of at least 5 years. While this annual deduction might seem like a part of CTC, you’re only entitled to it if you complete your term. If you’re terminated or resign earlier, you won’t get the gratuity, but the deducted amount may be returned to you as an ex-gratia payment.
Checkout:What is Limited vs Unlimited Contracts
CTC Calculation Formula with Example
Cost to Company (CTC) = Gross Basic Pay + Extra perks or allowances (health coverage and PF portion)
| Salary Components | Type of Incentive in Salary Package | Payment |
| Basic Salary | – | 100,000 |
| Allowances | House Rent | 35,000 |
| Medical | 10,000 | |
| Dearness | 30,000 | |
| Conveyance | 10,000 | |
| Gross Pay | 1,85000 | |
| Other Benefits | Medical Insurance | 3500 |
| Provident Fund (12% of basic pay) | 12,000 | |
| Total Benefits | 15,500 | |
| Total CTC Amount | 200,500 |
Gratuity Deduction from Salary: Is it deducted from Monthly Pay?
I’ve worked in payroll long enough to see how the gratuity amount is often deducted directly from an employee’s monthly salary, which includes both basic pay and additional allowances. That’s why the gratuity sum heavily depends on the monthly pay structure maintained throughout your employment.
According to the Payment of Gratuity Act 1972, the gratuity is approximately 4.81% of your basic pay. One straightforward formula often used for gratuity calculation within CTC is:
Gratuity amount = 15/26 × Last Basic Salary × Total Number of Service Years
If you’re looking to compute your end-of-service gratuity, using an online gratuity calculator is the best way. It’s a free, handy tool that can assist employees in checking their estimated gratuity amount in just a few seconds.
The calculation is based on your total years of service, your basic pay, and even your contract types, making it quick and reliable.
Is Gratuity and CTC Taxable?
From my experience discussing salary structures, a person’s gratuity is generally treated as part of their pay and is legally taxable. However, the government often provides tax exemptions on gratuities based on the total gratuity amount or specific situations.
Under the Provision of Income Tax Act 1961, some allowances may be either partially or fully exempt from tax. Meanwhile, an employee’s CTC or monthly salary is always taxable, which means taxes are deducted as per the rules on these amounts.
Does Gratuity Inclusion in CTC Mandatory in India?What the Law Say?
From my professional observations, Cost to Company represents the total expense a company bears for employing someone, but it’s not always the exact salary disbursed to the employee. On the other hand, Gratuity is computed based on the employee’s final drawn salary, which generally includes basic pay and DA.
In India, there is no legal obligation to include gratuity in CTC, though many companies opt to incorporate gratuity within the CTC to enhance the attractiveness of their compensation package.
Still, if an employer deducts an amount labeled as gratuity from the salary, it can be reclaimed, but not as gratuity, even if the employee leaves before completing five years of service.
Is Gratuity Considered Part of CTC in Accenture, TCS, and Cognizant?
Based on my experience with Indian payroll systems, if you are an Indian employee, your gratuity amount is generally not included in the Cost to Company (CTC), no matter which organization you work for. Even major top companies like Cognizant, Accenture, and TCS clearly don’t consider gratuity as part of the Cost to the Company.
Does Inclusion of Gratuity in CTC Impact Employee’s Monthly Salary?
In my experience with payroll, including gratuity in the CTC can affect an employee’s monthly salary since it forms a part of the overall compensation package. However, the impact on your monthly take-home pay really depends on how the employer chooses to structure the CTC.
Although the gratuity amount is factored into the CTC, the actual payment only happens after you meet the eligibility criteria, typically after completing a certain period of service. So while it definitely influences the overall compensation, it doesn’t necessarily increase the monthly salary directly but rather affects the total remuneration over time.
Conclusion
From what I’ve seen, the question “Is gratuity part of CTC?” goes beyond simple accounting semantics and involves understanding the complexities of the entire employment package. Although gratuity inclusion in CTC impacts your overall compensation, it doesn’t necessarily mean a direct boost to your monthly paycheck.
If you have any queries, feel free to contact us for a discussion — we’re available 24/7 to help you with solving problems related to this.
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