Difference Between Gross and Net Salary (With Table)

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 vs Net Salary

The difference between gross and net salary is that gross salary is the salary before any deduction and net salary is the salary after various deductions. The deductions in the salary are based on different rules set by the company and government. These deductions can be made by the employer or the employee.

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. 

Comparison Table Between Gross and Net Salary

Parameters of ComparisonGross SalaryNet Salary
MeaningAmount of salary before deduction.Amount of salary after deduction.
AmountThe amount is inclusive of all components.The amount is exclusive of all components.
BenefitsBenefits 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.
FormulaGross Salary = CTC – EPF – Retirals.Net Salary = Gross Salary – TDS – Deductions.
ComparisonThe 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

  1. Gross salary is the amount of salary before deduction. Net salary is the amount of salary after deduction.
  2. Gross salary is the amount that is inclusive of all components. Net salary is the amount that is exclusive of all components.
  3. 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.
  4. 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.
  5. In comparison, the amount of Gross Salary is higher. In comparison, the amount of Net Salary is lower.

Conclusion

Gross Salary is comprehensive of all employee benefits and taxes. Whereas Net Salary is exclusive of employee benefits and taxes. The Gross salary includes HRA, Leave allowance, travel allowance, bonuses, overtime, and other compensation provided by the company organization. However, it does not include Provident fund or retirals. These two are deducted from the CTC at the time of calculating gross salary. 

Net Salary is the actual money the employee gets. Net Salary is exclusive of Provident fund, retirals, tax, and the various compensations given to the employee by the company or organization. The Gross Salary is always higher in comparison. There are exceptions in which the amounts may be equal. And the Net Salary always depends on the Gross Salary.

References

  1. https://en.cnki.com.cn/Article_en/CJFDTotal-DXXH201104013.htm
  2. https://www.researchgate.net/profile/Anamaria-Popescu-2/publication/328408289_Analysis_of_the_evolution_and_correlation_between_gross_net_salary_and_consumer_price_index/links/5ca6cb1492851c64bd50bd5b/Analysis-of-the-evolution-and-correlation-between-gross-net-salary-and-consumer-price-index.pdf
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