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When you join an organization, the employer has to pay you a certain amount in exchange for your services. This salary includes deductions and benefits that you will get from the company. If you are an employee in an Indian company, you might be looking to know the gross salary meaning. This is important as it will help you understand the major difference between gross salary and what you get in-hand.
It is the full amount that the employees get from the organization in exchange for their services. It is the total amount inclusive of the deductions and additional benefits. This has income from all sources. It does not limit itself to any one source of income.
It is important to ensure accurate calculation of the same. It includes taxes and other expenses. The calculation is based on several factors. It may include job role, experience, industry, and company policies.
The factors affecting gross income calculation are as follows:
Let’s consider an example to understand the method of calculation. Suppose an employee’s basic salary is Rs. 50,000 per month, and they receive a house rent allowance of Rs. 10,000 per month and a transport allowance of Rs. 5,000 per month. The employee also receives a bonus of Rs. 25,000 and a health insurance benefit of Rs. 5,000 per month.
The formula for calculation for this employee would be as follows:
Gross Salary = Basic Salary + House Rent Allowance + Transport Allowance + Bonus + Health Insurance Benefit
Gross Salary = ₹50,000 + ₹10,000 + ₹5,000 + ₹25,000 + ₹5,000 = ₹95,000 per month
Employees need to know the process of calculation. This helps them avoid any unnecessary problems in their salary calculation. The process will help you understand what is your actual salary and what will be your take-home salary.
Employees and employers need to perform appropriate calculations. This makes it easier for them to manage their finances. Therefore, they will be able to plan their savings, budget, and expenses.
While calculating, it is important to comply with the latest regulations. If you are not calculating as per the law, it can hamper your taxes. Moreover, you might as well be in legal trouble for it. When you calculate properly, you will avoid making any rash decisions in terms of your finances. Therefore, you will be able to avoid any legal and financial consequences for their taxable income.
Cost to Company (CTC) represents the total amount an employer spends on an employee in a year. It includes gross salary, benefits, and additional perks such as bonuses, provident fund (PF), gratuity, health insurance, and other allowances. While CTC may appear high, the take-home salary is often lower due to deductions like taxes, PF contributions, and other statutory deductions. Understanding the difference between CTC, gross salary, and net salary is essential for salary negotiations and financial planning. Employees should analyze their CTC structure carefully to ensure they maximize benefits and optimize their earnings effectively.
CTC (Cost to Company) is the total amount an employer spends on an employee. However, CTC is different from gross salary.
Example:
If an employee’s CTC is ₹7 LPA:
Then, Gross Salary = ₹7,00,000 – (₹50,000 + ₹25,000) = ₹6,25,000 per year
Many people often use the terms gross salary and net salary interchangeably. However, it is important to know that these are different concepts.
| Gross Salary | Basic Salary |
| It is the total amount an employee receives without any deductions. | It is the main salary or core salary that an employee receives. |
| It includes overtime pay, allowances, and bonuses. | It includes overtime pay, allowances, and bonus. |
| Gross Salary | Net Salary |
| The employee will receive the complete amount. The salary does not hold deductions. | Net salary is the final amount that an employee receives. It is the amount after all the deductions. The net salary is therefore the amount an employee gets from the employer. |
| The formula for calculation: Gross Salary= Basic Salary + House Rent Allowance + Extra Allowances | The formula for net salary calculation: Net Salary= Gross Salary – Income Tax – Provident Fund – Professional Fund |
It is important to keep these concepts from the initial stages of applying for the job.
Also Read: Salary Breakup, Structure, and How it Affects In-hand Salary
Consider an example to know how taxes and salary deductions can impact the net salary. Suppose an employee’s gross salary is Rs. 60,000 per month. After taxes, contributions, and deductions, the net salary could be Rs. 45,000 per month. This means that Rs. 15,000 is deducted from the employee’s gross salary, leaving them with a net salary of Rs. 45,000. These deductions may include:
In India, income tax is a progressive tax. It’s more an employee earns, the higher the percentage of income tax they will have to pay.
Every employee must pay a percentage of their salary fund to Social Security Contributions. These contributions can reduce an employee’s net salary.
Some companies offer health insurance benefits to their employees. The premium for this insurance is deducted from the employee’s gross salary.
Employees can reduce their taxable income through various deductions:
The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, has introduced notable revisions to income tax slabs under the new tax regime. Effective from April 1, 2025, for the financial year 2025-26, these changes aim to streamline taxation and provide relief to taxpayers across various income groups. The updated tax slabs under the revised regime are as follows:
| Taxable Income (Rs.) | Tax Rate (%) |
|---|---|
| 0 – 12,00,000 | Nil |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Gross salary plays a crucial role in financial planning as it serves as the foundation for budgeting, savings, and investment decisions. It includes all earnings before deductions like taxes, provident fund contributions, and other deductions. Understanding gross salary helps individuals assess their actual earnings, plan monthly expenses, and set long-term financial goals.
A clear grasp of gross salary components also enables better tax planning, ensuring maximum savings under applicable exemptions. Whether planning for a home, education, or retirement, knowing your gross salary helps in making informed financial choices that align with your aspirations.
You must also learn the calculation process on your own. Once you receive the offer letter, you can apply the formulas and calculate them by yourself. You must see what additional benefits the company is offering you. Since it is important to comply with the law, in case of any discrepancies, you can reach out to HR.
Evaluate numerous career choices to choose the right career path for yourself. Dive into our guide on Career Advice.
It refers to the total income that an employee gets. It is the amount that includes all kinds of deductions from the salary. The net salary that the employee receives is very different from this.
There are different types of tax deductions. This may include income tax, arrears, funds, allowances, bonuses, and incentives.
Calculation includes the sum of basic salary and allowances. All employees must know how to calculate it. The proper calculation makes financial planning easier for people.
CTC is the total cost a company spends on an employee, including salary, benefits, and deductions, while take-home salary is the actual amount received after deductions like tax and provident fund.
Gratuity is a lump sum amount paid by an employer to an employee as a token of appreciation for long-term service. To be eligible, an employee must have completed at least five years of continuous service with the same employer.
Authored by, Amay Mathur | Senior Editor
Amay Mathur is a business news reporter at Chegg.com. He previously worked for PCMag, Business Insider, The Messenger, and ZDNET as a reporter and copyeditor. His areas of coverage encompass tech, business, strategy, finance, and even space. He is a Columbia University graduate.
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Chegg India does not ask for money to offer any opportunity with the company. We request you to be vigilant before sharing your personal and financial information with any third party. Beware of fraudulent activities claiming affiliation with our company and promising monetary rewards or benefits. Chegg India shall not be responsible for any losses resulting from such activities.
