In addition to CTC, net salary, and gross salary, salaries also include other components. One must understand these elements in order to use a salary calculator. Read on to know!
The terms gross income and net salary must have come up if you are a salaried individual. These terminologies, however, might be confusing to new employees. Thus, understanding these concepts as well as the difference between gross and net salary is important. In this blog, we will discuss the gross salary vs net salary.
Gross Salary Vs. Net Salary
When you receive your paycheck, you might notice two distinct figures: your gross salary and your net salary. These terms can often be confusing, but they represent crucial aspects of your income. Let’s delve into the differences between Gross Salary Vs Net Salary to understand what each means.
Gross Salary:
Your gross salary is the total amount of money your employer agrees to pay you for your work before any deductions or taxes are taken out. It’s that big number you might have negotiated when you accepted your job offer or signed your employment contract.
Gross salary includes your base salary plus any additional earnings, such as bonuses, overtime, or commissions. It’s the amount you see on your job offer letter or employment contract.
However, your gross salary isn’t what you take home. It’s the starting point for calculating your net salary.
Net Salary:
Your net salary, often simply referred to as “take-home pay,” is the amount you receive in your bank account after all deductions, taxes, and contributions have been subtracted from your gross salary. These deductions typically include
- Income Tax: The government imposes an income tax on your earnings, which varies based on your income level and tax laws in your country.
- Employee Provident Fund (EPF) or Retirement Contributions: Many countries mandate contributions to retirement savings schemes, such as the EPF, which is deducted from your salary.
- Professional Tax: In some regions or states, there may be a professional tax that’s deducted at the source.
- Health Insurance Premium: If your employer provides health insurance coverage, the premium may be deducted from your gross salary.
- Other Deductions: This can include deductions for social security, union dues, or other benefits provided by your employer.
What Is the Difference Between Gross Salary Vs Net Salary?
The Gross salary vs net salary: difference between Gross Salary and Net Salary are as follows,
| Parameters | Gross Salary | Net Salary |
| Definition | It is the amount that people make after including benefits and allowances but prior to any tax deductions. | It is the amount that employees keep after deducting benefits like insurance and provident funds. |
| Components | The house rent allowance, conveyance allowance, and medical allowance are a few of the components that make up the gross amount. | Net income is made up of various things, such as income taxes, professional taxes, provident funds, pensions, etc. |
| Amount | The total salary amount after all taxes is the maximum amount. | Most of the time, it is less than the gross pay after all taxes have been taken out. |
| Mode of Calculation | All payments are added together in the employer’s calculation | By deducting fines and mandated taxes, employers arrive at their calculation. |
| How to Calculate | Gross Salary = Basic Pay + HRA + Allowances | Net Salary = Gross pay – Deductions which are applicable |
| Benefit | Individuals do not need to pay tax at various rates when it comes to net income because a large portion of it is withheld before the final wage payment. | Individuals do not need to pay tax at various rates when it comes to net income because a large portion of it is withheld before the final wage payment. |
Vakilsearch Salary Calculator
With the help of the Vakilsearch calculator, one can easily calculate their salary amount. It involves the following steps:
- Pick a preferred tax system: the old or the new.
- Enter whether or not live in a metro city.
- Enter the CTC (Cost to company)
- Put the starting salary here.
- Submit the monthly rent you pay.
- Enter the monthly HRA provided by the employer.
- Tell us how much amount was invested overall under Section 80C.
- The amount you contributed to your health insurance deductible.
- Enter the employer and employee contributions separately and indicate the EPF monthly amount.
Once the required data has been provided, the calculator will rapidly display the following results:
- Monthly take home salary
- Annual take home salary
- Income tax deductible
- An employee’s take-home pay is the amount that is left over after deductions from gross pay are made.
For example
Annual CTC = ₹10 lakhs
₹30,000 in base pay per month.
The rent paid each month is ₹30,000.
HRA is ₹15,000
₹1.5 lakhs in investments for Section 80C
Monthly medical insurance premium: ₹2,000.
Together, employee and employer contributions for the EPF total ₹1,800 per month.
A yearly income tax under the previous tax system is equal to about ₹28,475.
Under the previous taxation system, the annual net take-home pay would be calculated using the formula below:
CTC, tax, and EPF contributions are calculated as 10L x 28,475 x 21,600, or ₹9,49,924.
The following will be the net yearly take-home pay under the new tax system:
CTC, tax, and EPF contributions are equal to 10L x 78,000 x 21,600, or ₹9,22,000
The salary calculator at Vakilsearch now shows monthly take-home pay along with annual take-home pay. You can use the salary calculator each month to make it easier to comprehend how much money would be available each month.
Conclusion
You can now easily interpret the information on the wage slip that companies provide since you are aware of the Gross salary vs Net Salary.
You can get in touch with Vakilsearch for further information, and our team of experienced legal professionals can help you with any legal matters that you have.
FAQs on Gross Salary Vs Net Salary
1. Are bonuses and incentives included in the gross salary?
Bonuses and incentives are typically included in the gross salary as part of your total earnings.
2. Is the gratuity part of the gross or net salary?
Gratuity is not part of either gross or net salary; it's a separate statutory benefit provided by employers.
3. Is overtime pay considered in the gross salary?
Overtime pay is considered in the gross salary, as it adds to your total earnings.
4. Do all employees with the same gross salary have the same net salary?
No, employees with the same gross salary may have different net salaries due to variations in deductions like taxes and contributions.
5. Can I negotiate my net salary or only the gross salary with employers?
It's more common to negotiate your gross salary with employers, as net salary depends on deductions that can vary.
6. Are commissions counted towards gross or net salary?
Commissions are counted towards the gross salary as additional earnings before deductions.
