Every employer requires to pay a specific/agreed amount to his/her employees and in exchange of that amount employees require to perform the agreed work. So, the amount given by the employer to employees is known as salary. The salary is usually paid for a fixed period of time, normally on a weekly, monthly basis. In other words, salary is the agreed payment, which is paid by the employer to an employee on a daily, weekly, monthly, or annual basis.
Gross salary refers to an amount of the salary which is paid by the employer to the employee prior to any deductions such as taxes, Social Security and medical/health insurance, and others. Point to be noted that gross salary includes basic salary, allowance (house, special conveyance, and others). In simple words, the Gross salary is a gross monthly/ annual sum paid by the employer to the employee.
Components of Gross Salary–
- Basic Salary
- HRA (House Rent Allowance)
- Leave Travel Allowance
- Conveyance Allowance
Formula For calculating Gross Salary-
Gross Salary = CTC (Cost to Company) – EPF (Employee Provident Fund) – Retirals
Net Salary is the salary amount that is paid the employer to the employee after the deductions of taxes, Public Provident Fund (PPF), and other taxes. The amount of the net salary is generally less than the gross salary whereas, it can be equal to gross salary in the case when the employee salary is less than the government tax slab and in case of where income tax is negligible.
Structure of Net Salary–
Formula For calculating Net Salary–
Net Salary = Gross Salary – Income Tax (TDS) – Deductions.
Difference Between Gross and Net Salary
|–||Gross Salary||Net Salary|
|Meaning||The gross salary is the amount of the salary, which the employee gets without any deduction.||The net salary is the amount of the salary, which employee gets after the deduction of PPF, income tax, and professional tax.|
|Benefit||All the benefits like overtime pay, bonus, holiday pay,||Net salary does not include all other fringe benefits.|
|Comparison||Gross salary is always greater than the net salary.||Generally, Net Salary is less than the Gross salary. But in some cases, it can be equal to the Gross salary.|
|Calculation||Gross salary attains from the CTC after deduction of the EPF and retirals amount.||Net salary s calculated after calculating the gross salary after deducting the income tax and other deductions.|
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