Understanding Your Paycheck: What's the Difference Between Gross and Net Salary?

Warm Regards To All,

Can someone please tell me what's the difference between Gross Salary and Net Salary?

Regards,
Srishti

What I think is that the Gross Salary is the total CTC and Net is what you get in hand. Am I right, Seniors.

Regards,
Srishti

Hi Srishti,

Net salary is the take-home salary of the employee, while gross salary is the figure before making statutory or other deductions. Gross salary includes basic pay, HRA, transport allowance, and other allowances.

Gross salary minus PF contribution, ESI contribution, professional tax contribution, etc. (as per applicability) becomes the net salary.

I hope it's clear. Please revert back for further queries.

Rolly

Dear Sristhi,

Gross Salary is the agreed/committed compensation your organization agrees to pay on a monthly (periodic) basis against your services for that period. Net Salary is gross salary less the deductions made on account of statutory compliances (like PF, ESI, Income Tax, Professional Tax) and other dues (like loans and advances taken) that you owe to the company and legal dues if any. It is something you get in hand and commonly referred to as Take Home Pay. Your Income Tax is based on the Gross Pay. While CTC or Cost to Company is equal to Gross pay + Benefits, Perks, and Perquisites, i.e., the total cost a company incurs in employing the person.

Regards, SC

Dear All,

In the case of PF contribution by the employer being included in CTC, how do we arrive at Gross... is that element not included?

Best Regards,
Anu

Hi,

Just a small input from me about this.

Income Tax is based on annual CTC (or Total Income), which includes all perks and perquisites. Also, as per my understanding, Gross Salary is the total salary received on a MONTHLY BASIS. This excludes the annual components like LTA, bonus, etc. CTC is Gross Pay + annual components + perks/benefits/perquisites, whether in cash or kind. Net pay is the take-home pay, after all deductions.

However, some people refer to Gross pay as the total of only the CASH components. Non-cash components like driver, sweeper, company accommodation, etc., which the employee does not pay for, are excluded. These are a part of CTC though.

Warm regards,
Devjit

Hi Devjit,

Could we have some percentage splits of each of these components in the compensation structure across industries? Let's say for IT, ITES, FMCG, Pharma, Auto, Consultancy, Financial Setup, and Government.

Regards,
Dheeraj

Hi Dheeraj,

I do not have even the foggiest idea about the industry splits. If I do come across the data, I will surely share it here.

Warm regards,
Devjit

Hi,

Let me explain with an example -

Let us say the employee earns the following per month:

Basic Salary - INR 10,000

House Rent Allowance - INR 5,000

Conveyance Allowance - INR 1,000

Magazine Allowance - INR 500

Education Allowance - INR 250

Then, GROSS SALARY - INR 16,750

Deductions:

Provident Fund - INR 1,200

Income Tax - INR 750

Profession Tax - INR 130

Loan Deduction - INR 750

Total Deductions - INR 2,830

Then, NET SALARY - INR 13,920

His Leave Travel Allowance - INR 10,000 per annum

Medical Reimbursement - INR 10,000 per annum

Premium for mediclaim - INR 1,500 per annum

PF-Management Contribution - INR 16,332 per annum

Then, CTC (Cost to Co.) - INR 2,38,832 per annum.

CTC = Monthly Gross Salary X 12 + Annual benefits (INR 37,832)

Govardhan

Dear Devjit,

You are right. But what I meant was that the Annual Gross Pay which includes other perks and benefits. Perquisites I missed out on. Sorry for the slip.

One more thing we should understand is that all components of CTC are not included in Taxable Income, like Gratuity, PF, Medical Coverage Insurance, Accident Benefits Insurance, and Industry-Specific Benefits.

Regards,
SC

Hi,

In addition to gratuity and other benefits, CTC can also include the cost of a uniform dress if provided, mobile phone expenses if reimbursed, etc., as Swastik rightly mentioned as company-specific benefits.

Regards,
Govardhan

Dear Govardhan,

Just tell me whether net salary is equivalent to take-home salary, i.e., the salary in hand.

Regards,
Srishti

Dear Srishti,

Yes, net salary is take-home pay. However, if the employee spends some money for personal purposes on the way home while taking his salary cash, that should not be deducted to calculate take-home pay - to be on the lighter side.

Govardhan

Hello,

Good replies to the query. The gross salary constitutes basic pay, dearness allowance (DA), and allowances such as rent, compensatory, traveling, transport, etc. Therefore, the gross salary is calculated before any deductions are made. Following that are deductions such as Provident Fund, ESI, income tax, insurance, advances taken, etc. The final amount credited to our bank account or paid in cash/cheque is the net salary. In essence, Net Salary = Gross Salary - Deductions. As correctly pointed out by SC, income tax is calculated based on the Gross Salary. I hope our gross salary increases, deductions decrease, and ultimately our net salary rises. :)

Best wishes,
Senthil Raj
Email: karpavi_raj@yahoo.com

Yeah, Swastik is absolutely right.

Bonus and other annual benefits are also included in CTC. Gross salary is the total monthly salary without monthly deductions (PF, TDS, Professional tax, etc). Net salary is what you take home after all kinds of deductions.

Hi,

Please find the following information:

What is CTC?
CTC (Cost To Company): It includes Employer contribution To PF (12%).
Example: If CTC is Rs. 8000
Employer Contribution To PF = 12% of CTC
i.e. 8000 * 12% = 360

What is Gross Salary?
CTC - Employer Contribution to PF
i.e. 8000 - 360 = 7640
Gross = 7640

What is Take Home Salary?
Gross - employee contribution to PF - other deductions
Gross: 7640
Employee contribution to PF (12%): 360
Other Deductions:
- Mobile
- Food
- Cab

Regards,
Maniksing

Dear Swastik,

Can you please forward me the format of a salary slip? What items are mandatory and what are not? Actually, people working in our organization are not happy with the kind of salary slips we issue. What deductions should be shown on the salary slip?

Thanks,
Richa

Dear Richa,

Please attach your payslip format, and I will make the necessary changes and send it back to you.

Regards,
SC

Hi Swastik,

Please find the attached salary slip that we issue. We actually provide the salary slip along with the salary transferred into employees' accounts. Can we include the following items on the salary slip: Basic, HRA, Transport, Child education allowance, Conveyance Allowance (on which FBT is paid), Bonus, and PF?

Kindly reply ASAP.

Richa

Dear Richa,

I think some minor adjustments are needed, and your payslip will be absolutely okay. So instead of modifying, I am putting them here only. Keeping the same format, just rename the two columns as PAYMENTS and DEDUCTIONS:
In place of TOTAL under PAYMENTS, put GROSS PAY.
In place of TOTAL under DEDUCTIONS, put NET PAY.
Yes, you can also use the T format of Accounts.

In almost all organizations that issue pre-printed and/or computer-generated payslips, all headings under which payments that are to be made to the employees are kept, and the same with deductions. The headings under which payments are made or deductions are charged, the amount is given, and the rest is kept blank. For example, in the case of a Bonus, the field will remain blank for 11 months, and in the month in which the Bonus is paid, the amount is shown. The same goes for Advances and Loans.

One more thing, the payslip must have the Company Name and Logo.

Revert back for further queries.

Regards,
SC

Hi people,

Could we have the percentage splits of each of these components in the compensation structure across industries, let's say for IT, ITES, FMCG, Pharma, Auto, Consultancy, Financial Setup, and Govt?

PS: Splits as in gross, net, CTC.

Regards,
Dheeraj

Dear Ruchi,

I am enclosing some samples, but I don't think it is necessary. Your payslip is more or less ok. Please add the company logo and name.

Regards,

SC

Hi,

This is Amol Agaskar working for HR Service Provider.

Basic: 5000
HRA: 2500
Conveyance: 800
Medical: 1250
Gross Salary: 9550
(-) PF: 600
(-) ESIC: 167
TDS: Nil
Net Salary: 8783

From the above details, you can see that Gross Salary represents the total earnings, and when you deduct the various deductions from the Gross, you arrive at the Net Salary.

Regards.

CTC - Cost to Company,

In CTC Salary Distribution will be:

(A) Basic Salary + HRA + DA

(B) Conveyance + Medical + Other/Special Allowance if any

(C) Employer's Contribution for PF (12% of Basic)
Employer's Contribution for ESIC (4.75% of Gross)

(D) Employee's Contribution for PF (12% of Basic)
Employee's Contribution for ESIC (1.75% of Gross)

Gross Salary = (A) + (B)

CTC = (A) + (B) + (C)

Net in Hand = (A) + (B) - (D)

CTC - Cost to Company,

In CTC, Salary Distribution will be:
(A) Basic Salary + HRA + DA
(B) Conveyance + Medical + Other/Special Allowance if any
(C) Employer's Contribution for PF (12% of Basic)
Employer's Contribution for ESIC (4.75% of Gross)
(D) Employee's Contribution for PF (12% of Basic)
Employee's Contribution for ESIC (1.75% of Gross)

Gross Salary = (A) + (B)
CTC = (A) + (B) + (C)
Net in Hand = (A) + (B) - (D)

Thanks and Regards,
Amol Agaskar (Sr. HR Executive - HR Operations)
HRprowess

Gross salary is inclusive of all the remuneration payable to an employee, while net salary is only the take-home salary. That is, gross salary earned minus the deductions towards ESI, EPF, PT, insurance, etc.

Gross salary is what you receive from your company, and net salary is what you get in the subsequent month after giving your wife her share.

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I have corrected the spelling, grammar, and punctuation errors in the text. The paragraphs have been properly formatted with a single line break between them. The original meaning of the message has been preserved.

Hi friends,

How is life? Hope it's going well. Gross salary is the combination of basic, DA, HRA, transport allowance, convenience, entertainment, special allowance, and other allowances. Net salary equals Gross salary minus deductions (PF, ESI, PT, IT, Advance, Union fund, and others). Hope this is clear.

With great wishes,
Suresh Babu
09247299593
sureshbabuhr@yahoo.co.in
Hyderabad.

My understanding of gross salary is your income before statutory deductions. We could also equate it with the term "basic salary".

Net salary is therefore the income after deductions and could be termed as "take-home pay".

Please note, however, that there are certain benefits that are non-cash which could have been converted into cash and added to your net salary, such as free cell phone use, fuel, car maintenance.

I hope you find this explanation useful.

Paa Kow

Dear All,

The CTC structure can be broken into three major components: CTC, Gross Salary, and Net Take Home.

CTC includes Gross Salary and Employer Contributions like ESI, PF, and Insurance, if any.

Gross Salary includes Net Take Home and Employee Contributions like ESI, PF, and Professional Tax.

The final component after the above deductions will be the Net take-home salary of an employee.

Regards,

Suresh Ramalingam
Consultant - Compliance

Hello All,

Gross Salary = Your salary before any PF, ESI, and TDS deductions. Net Salary = Your salary - PF deduction - ESI deduction but before TDS deduction. CTC = Your salary + Employer's ESI and PF share + other benefits given by the company.

Amit Goyal

Hi,

I want to know if leave deduction can be done on gross salary or net salary. Please solve this query.

Regards,
Bharti

Hi, can you please explain if there is any standard format for calculating salary breakup or does it differ from organization to organization?

Regards,
Supriya

Hello Govardhan, Can you clarify how you arrived at the figures for IT, ProfTax, and Loan Deductions? Is there a standard percentage figure that will be deducted on a monthly/annual basis for the below items? I understood how you arrived at the PF figure, for example, 12% of the basic salary. Can you also inform me about the statutory percentage figures for contributions by employees/employers set forth by the government regarding IT, ProfTax, Loans, etc.? Please mention anything else that needs to be taken into consideration.

As far as my understanding goes, the IT slab is 10% for the figure (2,38,832) we are discussing in this case. So, I tried to deduce how you arrived at the IT (750) figure, assuming a 10% IT Slab, but I could not come to the figure you mentioned. My calculation was 10% of 238,832 = 23,883/12 = 1,990 per month. I am able to arrive closely at 750 by using 4.47% of 16,750. Is this correct?

Thanks

Example Calculation

Hi, Let me explain with an example - Let us say the employee earns the following per month:
- Basic Salary - INR 10,000
- House Rent Allowance - INR 5,000
- Conveyance Allowance - INR 1,000
- Magazine Allowance - INR 500
- Education Allowance - INR 250

Then, GROSS SALARY - INR 16,750

Deductions

- Provident Fund - INR 1,200
- Income Tax - INR 750
- Profession Tax - INR 130
- Loan Deduction - INR 750
- Total Deductions - INR 2,830

Then, NET SALARY - INR 13,920

His Leave Travel Allowance - INR 10,000 per annum
Medical Reimbursement - INR 10,000 per annum
Premium for mediclaim - INR 1,500 per annum
PF- Management Contribution - INR 16,332 per annum

Then, CTC (Cost to Company) - INR 2,38,832 per annum.
CTC = Monthly Gross Salary X 12 + Annual benefits (INR 37,832)

Regards
Govardhan

I agree with Rolly. Below, I have provided an example:

Basic HRA LA DA Gross PF ESIC Net Pay
5000 2000 1000 2500 10500 600 184 9716

Please let me know if you need any further assistance.

Gross Salary, Net Salary, and CTC are different. Net salary is the salary that an employee takes home. CTC stands for Cost to Company.

Please let me know if you have any other questions or need further clarification.

Hi Srishti,

Net Salary = Employee Take Home Salary. CTC = Cost to Company. This is the salary package of an employee. It is expenses of an employer spending on Employee for his service period of one year. CTC is not the actual salary of the employee.

I am fully in agreement with your example that CTC = gross salary + gratuity + employer contribution (PF, ESI) + bonus + leave encashment + reimbursement. However, some people include employee contributions (PF, ESI) in the gross salary.

Could you please clarify this with an example?

Thank you,
Harpreet Singh

If an employee's gross salary is 20,000 Rs, then the net salary would be 20,000 - (PF 1800 + ESI 350 + PT 150) = 17,700 Rs. (PT varies from state to state)

Cost to Company = Gross Salary + 13.36% PF on Basic wage + 4.75% ESI on Gross Salary

Read the complete difference @ [Gross Salary Net Salary Difference & Cost To Company](http://www.hrcabin.com/gross-salary-net-salary-difference/)