Every individual receives a reward or compensation for the work that has been done. In an organization, every employee receives a monthly payment from the employer.
This monthly payment is called Salary. The amount is decided before starting employment and is also mentioned in the contract.
- Gross salary refers to the total amount of money earned before any deductions, while net salary is the amount received after deductions like taxes and insurance.
- Gross salary determines loan and credit card eligibility, while net salary is the amount deposited into the bank account.
- Gross salary can vary depending on bonuses and overtime, while net salary is typically consistent from paycheck to paycheck.
Gross vs Net Salary
Gross salary is the salary amount in which no deductions have been made so far, so it still includes the various components like taxes. Net salary is the amount of salary that remains and is paid to employees after the deduction of different components from gross salary. It is also called the take home salary.
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Gross salary refers to the salary which includes various components of the mentioned package. It is the amount from which no deductions have been made so far.
The gross salary and components that need to be deducted are mentioned in the contract or offer letter by the organization.
Net Salary refers to the amount of salary which remains after the deduction of various components from gross salary. This is the amount that the employee actually receives.
In other terms, it is also called the ‘Take Home Salary.’ The amount of net salary is always less than the gross salary.
|Parameters of Comparison||Gross Salary||Net Salary|
|Meaning||Amount of salary before deduction.||Amount of salary after deduction.|
|Amount||The amount is inclusive of all components.||The amount is exclusive of all components.|
|Benefits||Benefits like bonuses, overtime, and holiday pay are included in the gross salary.||Benefits are excluded from the net salary as they are deducted from the gross salary.|
|Formula||Gross Salary = CTC – EPF – Retirals.||Net Salary = Gross Salary – TDS – Deductions.|
|Comparison||The amount is higher than the Net Salary.||The amount is lower than the gross salary.|
What is Gross Salary?
Gross Salary is the salary that is comprehensive of the various components of an employment package or salary package. This salary includes the imposed income tax, insurance, and so on.
This is the amount of salary from which no deductions of any kind are made.
Before the beginning of the employment period, the amount of gross salary and other components like tax, bonus, insurance are mentioned in the contract or the offer letter by the company or organization.
The salary and components mentioned can be on a yearly basis or monthly basis. The gross salary does not include employee provident funds and retirals.
The gross salary only includes the employee’s compensation benefits. As per the rule of the Ministry of Labour, at the time of retirement, an employee can withdraw the amount accumulated over the years in the PF account.
Other than retirement, an employee can withdraw the money in case of termination, retirement due to illness, and unpredicted relocation of employment.
Since the gross salary is inclusive of various components, the amount is higher than any other compensation amount.
Gross Salary can be calculated with the help of the given formula:- Gross Salary = CTC(Cost to Company) – EPF(Employee Provident Fund) – Retirals.
What is Net Salary?
The salary that an employee receives after the deduction of various components of gross salary and tax or the deduction of taxes from the gross salary is called Net Salary.
This salary is also called the Take Home Salary as this is the amount of salary which an employee gets to keep. The Net Salary is exclusive of all the components.
The amount of net salary is always less than the gross salary. However, in certain situations where the tax rate is low or negligible, the net salary can be almost similar to the gross salary.
It occurs when the gross salary comes under the tax slab. The amount of Net Salary of an employee always depends on the Gross Salary.
The different components of Gross Salary which are deducted for obtaining Net Salary are- House Rent Allowance: Covering house rent reduces the tax; Conveyance Allowance:
Covering the estimated cost of travel from home to work and back; Bonus: Extra income or gifts or performance allowance.
Gross Salary can be calculated with the help of the given formulae:- Net Salary(or Take Home Salary) = CTC(Cost to Company) – EPF(Employee Provident Fund) – Retirals – Deductions – Income Tax (TDS) OR Net Salary = Gross Salary – Income Tax (TDS) – Deductions.
Main Differences Between Gross and Net Salary
- Gross salary is the amount of salary before deduction. Net salary is the amount of salary after deduction.
- Gross salary is the amount that is inclusive of all components. Net salary is the amount that is exclusive of all components.
- Benefits like bonuses, overtime, and holiday pay are included in the gross salary. Benefits are excluded from the net salary as they are deducted from the gross salary.
- The formula for Gross Salary is Gross Salary = CTC(Cost to Company) – EPF(Employee Provident Fund) – Retirals. The formula for Net Salary is Net Salary = Gross Salary – TDS(Income Tax) – Deductions.
- In comparison, the amount of Gross Salary is higher. In comparison, the amount of Net Salary is lower.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.