Gross Salary is the term used to describe all the money an employee has made working for the company in a year. It is the salary that is without any deductions like PF, Income Tax, etc. However, Gross Salary includes basic salary, house rent allowance, special allowance, and conveyance allowance, among others. Let us understand gross salary in detail including its components, calculation, and more.
Components of Gross Salary
Gross salary is the monthly or yearly salary of an employee before any deductions are made from it. Components such as basic salary, house rent allowance, provident fund, leave travel allowance, medical allowance, Professional Tax, etc. are some of the most important components of gross salary. Listed below are the various components that together make up the gross salary:
Important Components of Gross Salary
|1. Basic salary, pension component, gratuity component, salary arrears, fee or remuneration, payment for overtime, ex-gratia, and performance-related cash awards.|
|2. Allowance such as house rent allowance, medical allowance, leave travel allowance, dearness allowance, and other such special allowances.|
|3. Perquisites like rent for accommodation, electricity, water, and fuel charges.|
|4. Pension received from the former employer.|
Components that do not form part of Gross Salary
Following are the few things that do not form part of the gross salary paid by an employer to an employee:
- Reimbursement for medical expenses
- Leave Travel Concession
- Leave encashment rolled out at the time of retirement of employee
- Free meals or snacks or refreshments provided by the employer to its employees, during office hours
Difference between Gross Salary and Basic Salary
Basic salary is a rate of pay agreed upon by an employer and employee and does not include overtime or any extra compensation. Gross salary, however, is the amount paid before tax or other deductions and includes overtime pay and bonuses.
|GROSS SALARY||BASIC SALARY|
|Gross Salary is the amount of salary after adding all benefits and allowances but before deducting any tax||Basic salary is the amount paid to an employee before any extras are added or taken off. It does not include any allowances, overtime, or any extra compensation|
|Gross salary is inclusive of bonuses, overtime pay, allowances, and other differentials||Basic salary is the core of the salary received by an employee|
Difference between Gross Salary and Net Salary
The main difference between gross salary and net salary is that while gross salary is your salary before any deductions are made from the salary, net salary is the salary an employee takes home after all deductions have been made.
|GROSS SALARY||NET SALARY|
|Gross Salary is the amount of salary after adding all benefits and allowances but before deducting any tax||Net Salary is the amount that an employee takes home|
|Gross salary includes benefits like HRA, Conveyance Allowance, Medical Allowance, etc.||Net Salary = Gross salary – All deductions like Income Tax, Pension, Professional Tax, etc. It is also known as Take Home Salary|
PF calculated on Gross Salary
The calculation of Gross pay for the purpose of PF calculation is different than that used in the payroll context. Let us consider PF Gross to denote the salary to be considered for PF calculation.
PF Gross includes Basic, DA, Conveyance, Other Allowance, etc. (heads of pay which are included for PF calculation). It excludes House Rent Allowance, Bonus, etc. (heads of pay which are excluded for PF calculation) as per the provisions of the PF Act.
Deductions from Gross Salary
For calculation of Income Tax, gross salary minus the eligible deductions are considered. For example, you will have to deduct HRA exemption, any home loan EMI, investments under sections 80C and 80D, and similar such things for the calculation of taxable income.
This taxation process is different for self-employed and salaried individuals.
How to Calculate Gross Salary?
To understand the calculation of gross salary, let us take the help of an example. Suppose Mr. ABC works in the IT department with XYZ Technologies Ltd. His gross salary per month is Rs. 73,000 while his net take home is just Rs.60,000.
Following is the breakup of his salary components which justifies the marked difference in his gross and net salary.
|Basic Salary||Rs. 30,000|
|Provident Fund||Rs. 3,000|
|Travel Allowance||Rs. 15,000|
|Total= Rs. 83,000|
|Provident Fund||Rs. 2,000|
|Income Tax||Rs. 1,500|
|Professional Tax||Rs. 500|
|Loan Deduction||Rs. 9,000|
|Total Deductions= Rs. 13,000|
Here the Gross Salary of Mr. ABC is Rs. 83,000, while his Net Salary is Rs. 70,000 (Rs. 83,000 – Rs. 13,000).
Frequently Asked Questions (FAQs)
What is the gross salary of an employee working in an organization?
Gross salary is the amount of money that an employee earns by working in an organization. This gross salary adds basic salary and other benefits which are given by the employer to the employees.
What is the net salary of an employee?
The net salary of an employee is the subtraction of deductions and taxes from the gross salary (net salary = gross salary – deductions).
What are the additional components included in the gross salary?
Additional components included in gross salary are basic salary, special allowance, house rent allowance, conveyance allowance, medical allowance, educational allowance and leave travel allowance.
Is monthly salary gross or net?
Net monthly income is your monthly income after all taxes, Social Security payments, and deductions for retirement accounts are taken out of your paycheck. Gross monthly income is the amount of money you earn each month before these items are deducted from your paycheck.
Is PF calculated on gross salary?
In most cases, for those working in the private sector, it’s the basic salary on which the contribution is computed. For instance, if your basic monthly salary is Rs. 30,000, then contribution by you and your employer would be Rs. 3,600 each (12% of basic).