Gross salary is the amount paid to an employee before deducting his taxes and after subtracting the amounts paid in EPF, gratuity, bonus, holiday pay, over-time pay and other variants.
Gross Salary = Total Monthly Income – Employee Contribution – Employer Contribution – Taxes
A person’s gross salary (also known as their “gross pay” or “pre-tax earnings”) is the amount of money they make for an hour, week, month, or the year before deductions such as taxes and insurance are taken out. There is no official definition of gross pay, but it might be defined as a person’s total income before deductions such as taxes and insurance.
In this glossary, you will get to know more about gross salary like-
- How to calculate your gross salary in India from CTC?
- Gross Salary vs Net Salary
How to calculate your gross salary in India from CTC?
It is important to know how much your take-home salary will be after all the deductions have been made. Your company may give you an approximate figure, but it would be best to calculate it yourself. Know what deductions are made from your CTC before signing the employment contract.
- Start with the basic pay, then add allowances. Your employer will likely give you an exhaustive list of allowances in your CTC, but it is essential to understand what they mean. For example, HRA or LTA might be expressed as a percentage of the basic salary. If your employer gives you this figure, make sure to convert it into an amount deducted every month.
- Add benefits like PF or insurance premiums. Any money paid toward the Public Provident Fund, life insurance policies, pension plans, and gratuity schemes is eligible deductions under Section 80C of the Income Tax Act. Your company might deduct a specific amount every month, but it is best to keep a record of the total and make sure this amount is updated as it might change from time to time. You will then use that number when you file your income tax returns.
- Include employee expenses. If your employer reimburses you for specific expenditures, these can be deducted from your gross salary figure. For instance, if the company pays for the cab you use to go home every day, this money can be taken off your gross salary. Keep detailed records of all expenditures reimbursed by your employer to clear what was an expense and what was not.
- Subtract anything not allowed as a deduction. Section 80C deductions are allowed, but anything not listed there is not. This includes mobile phones and gifts that your company pays for. Be aware that the concept of “allowances” sometimes does not apply to these items either.
- Add back any allowances that were already deducted earlier in this calculation. For instance, if your company reimburses you 100 rupees toward the cab fare every day, but this is already included in the costs mentioned earlier (and therefore deducted from your salary), you should add it back.
- Include all other deductions like tax or any money paid toward other schemes outside Section 80C. For instance, if you are contributing to a pension plan yourself, make sure to include that in this calculation.
- If applicable, remember to include the matching amount your company is contributing toward your PF. In some instances, you and your employer have to contribute a specific percentage of your monthly salary toward the fund. If you are unsure about it, ask for more information from HR or official sources on the PF website.
- Add everything together to get your gross salary.
Gross Salary vs Net Salary
Gross salary is the total sum of money that an employer pays to an employee in exchange for their work. Gross salary is the amount you earn before any deductions are made for taxes and other financial expenses. It should be noted that this figure does not include income tax nor other indirect taxes such as VAT or goods and services tax (GST) which will vary from country to country.
Net salary is the salary that you receive after deductions. This also includes income tax and other taxes, deducted monthly or annually through your paycheck. It’s common knowledge that the higher your gross salary is, the less money you will see in your bank account at the end of each month. On the other hand, net salary is what remains after various compulsory deductions have been made. This includes income tax and social security contributions paid by both employer and employee and payroll taxes paid by the employer.