difference between gross salary and take home salary
  • Understanding Gross Salary & How Is It Different From Your Take-Home Pay?

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  • Category: Finance
  • Published Date: September 7, 2021
  • Modified Date: September 7, 2021
  • Reading Time: 4 Minutes

Featured Image Caption: Difference between Gross Salary and Take Home Salary

If you are a salaried employee, you may have noticed that there’s a good amount of monetary deductions on your paystub every month. Occasionally, you may receive a bonus or overtime payment but you never get to receive the total amount because of the allowances and tax payments. This overall salary without any deductions is called Gross Salary and it is different from your Take-Home pay. This article will go through this topic in detail, attempting to address common concerns and refute common misconceptions.

What does Salary mean?

Salary is the regular monetary payment made by an employer to his or her employees in consideration of the work they do. This payment is usually done in regular intervals, monthly or annual. The amount is decided by mutual consent with comparison to others in the same position or rank. However, certain outside factors also influence the salary amount including vacancies and the experience of the employee.

The amount decided by the employer is a fixed sum that is paid to the employee in exchange for their service for that particular time interval. This figure arrives before any deductions or increases are made for overtime or bonuses, as well as allowances. Allowances are deducted in exchange for the variety of other benefits received by the employee, from the employer. The majority of these allowances are taxable, while some are partly taxable, and few are fully exempted.

What is the definition of a gross salary?

Gross Salary is the total amount the employee has earned during the paid interval. It includes the basic salary and additional amounts including overtime payments, performance bonus, and special bonus. However, it does not include any deductions from salary. Basic income, pension, housing rent allowance, special allowance, electricity, water, fuel charges, among other things, are all components of gross salary.

The amount of gross salary is usually higher than the net salary or the take-home amount. It can be equal in some cases if the income tax amount deducted is zero and allowances are not offered.

What is the difference between Gross Salary and Take-Home Pay?

Gross Salary is the total amount you have earned during the paid interval while you receive only a part of it after deductions as take-home pay. The main deductions of the take-home amount, which are referred to as Net Salary, are Public Provident Fund and Employee Provident Fund. The total deducted amount under PF is usually no less than 12 percent. Gratuity is another deduction that is paid as a sign of appreciation for the services provided by the employee throughout his or her employment. It is around 5 percent of the employee’s basic salary.

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Let’s say, you are signed to receive a monthly salary of Rs. 50000 in exchange for your service for a particular organization. The organization decides to give you a performance bonus of Rs. 10000 and overtime payment of Rs. 5000. But, on your pay slab, you receive a sum of Rs. 59000.

Here, your basic salary is Rs. 50000. Your gross salary is Rs. 65000 and your take-home pay or net salary is Rs. 59000.


Q. What is the method for calculating TDS on a salary?

A. The following steps will show you how to calculate TDS on a pay.

  • First, you need to calculate your gross monthly salary and deduct exemptions under Section 10 of the Income Tax Act.
  • Multiply the amount by 12 to the annual value.
  • You need to include any additional annual sources of income with the amount received.
  • Next, you need to calculate the deductions that apply to your investments under Chapter VI-A.
  • You have to deduct the monetary amount of deductions under Chapter VI-A from the amount received after Step 3.
  • The received amount is your taxable income slab. You have to compare it with the Income Tax slab rate for Financial Year 2020-21 to get your TDS rate on salary.

Q. What’s the difference between Basic salary and net salary?

A. Basic salary refers to the amount decided by the employer to pay an employee for his or her service. The amount is neither affected by deductions nor bonus additions. On the other hand, Net salary or Take-home pay is the amount the employee receives on behalf of his or her service. The amount is calculated by deducting tax payments from the basic salary and adding bonus amounts if any.

Q. What is CTC?

A. CTC or Cost to company is the entire amount of money spent on an employee by an employer over a year. The amount is calculated by adding monetary amounts of benefits enjoyed by the employee on his annual gross salary.

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