Gross Salary vs Net Salary

Difference Between Gross Salary vs Net Salary

Salary is a fixed amount paid by the employer to their employees in exchange for their services. It is a regular payment made by the employer at a fixed interval of time, which is generally monthly and generally denoted in the form of an annual package. Most of the time, salaries are usually determined by comparing employees’ salaries for a similar role in the same or different Industry. Salary is also segmented into two major categories, i.e. gross salary vs the net salary.

Gross Salary

Gross Salary is a composite of several components of an individual salary package. It is the salary comprised of income tax, EPF and, Medical insurance, etc. without prior deduction. The Gross Salary mentioned in the company’s offer letter in the salary section mentions all the required components on a yearly and monthly bases like bonuses, overtime pay, holiday pay, and other differentials. If we think in terms of CTC perspective, Gross Salary does not cover EPF and gratuity. Moreover, Gross Salary involves only compensation benefits to the employee.

Moreover, the Ministry of Labour has empowered the employee to withdraw the whole accrued amount of his / her PF account at the time of retirement while attaining 55 years.

Apart from that, there are various other circumstances when an employee can withdraw from their privileged account as specified below.

• Termination of services.
• Retirement due to incurable diseases or disabilities.
• Unexpected relocation of an employee to oversees

Components of Gross Salary

There are some basic components of gross salary used while calculating an individual’s annual package.

• Basic Salary – A major component of the gross salary which you get.
• HRA(House Rent Allowance) – Consider the house rent of any employee & reduce the tax of an individual.
• Leave Travel Allowance – This component covers the travel cost of an employee & help in tax exemption.
• Conveyance Allowance – This component is used to facilitate an employee to travel from home to work & back.
• Retirals – Also known as superannuation, which covers an employee pension plan for post-retirement.
• Bonus – Gifts or performance allowance which covers under gross salary.

Others like Medical allowance, Provident Fund(PF), etc.

Gross Salary Formula Calculation

• Gross Salary = CTC(Cost to Company) – EPF(Employee Provident Fund) – Retirals

Net Salary

Net Salary is the amount of the employee’s salary after deducting tax provident fund and other such deductions from the gross salary, which is generally known as Take home salary. Although, net salary is lower than the gross salary. In certain circumstances. It can be equal to the gross salary when the income tax is negligible, and the salary of the employee falls below the government tax slab.

Net Salary Formula Calculation

• Net Salary(or Take Home Salary) = CTC(Cost to Company) – EPF(Employee Provident Fund) – Retirals – Deductions – Income Tax (TDS)
• Net Salary = Gross Salary – Income Tax (TDS) – Deductions
• Net Salary <= Gross Salary

Head to Head Comparison Between Gross Salary vs Net Salary (Infographics)

Below is the top 6 difference between Gross Salary vs Net Salary

Key Differences between Gross Salary vs Net Salary

The most significant difference between the gross salary and net salary as specified below:

• The annual compensation which is decided initially without any deduction is known as gross salary, and the amount that remains after reducing taxes and benefits is known as net salary.
• Gross Salary is always higher than the Net salary.
• The best thing to perceive between gross salary vs net salary, net salary is always dependent upon the gross salary.
• Net Salary derives from Guide to Gross Income after all adjustments and appropriations.
•  Gross Salary involves all the benefits in favor of the employee, which the employer pays annually while Net Salary is the fixed amount enjoyed by the employee monthly.

Gross Salary vs Net Salary Comparison Table

Let’s look at the top 6 Comparisons between Gross Salary vs Net Salary.

Conclusion

Gross Salary is a composite term of benefits and taxes offered by the employer annually while hiring an individual on the role that includes basic salary, HRA, Leave Travel Allowance, Bonus, and other elementary things required to continue the job. However, Net salary is a segment of the Gross salary derived after deduction of income tax and other conducive deductions. Gross Salary is always higher than the net salary and sometimes equals the net salary when an employee’s salary falls below the government salary tax limit. EPF amount is deducted from the employee’s monthly salary for future redemption. In which a certain part of the EPF paid by the employer in favor of the employee.

Recommended Articles

This has been a guide to the top difference between Gross Salary vs Net Salary. Here; we also discuss the Gross Salary vs Net Salary key differences with infographics and comparison table. You may also have a look at the following articles to learn more –

1. Accrual vs Provision
2. Asset Purchase vs Stock Purchase
3. Financial Accounting vs Management Account
4. Active vs Passive Investing