Difference Between Gross Salary and Net Salary
If you are a salaried individual, you must have come across terms like gross salary and net salary. However, for new joiners, these terms may seem confusing. Hence, it is imperative to learn about these terms as well as the difference between gross and net salary.
Read the following piece and clarify all your doubts!
What Is Gross Salary?
Gross salary refers to the aggravated amount released before deductions by the employer of a company towards employees. It is known as Savings Contributions, and employees receive it without deductions, such as income tax, medical insurance, PF, etc.
However, gross income includes bonuses, holiday pay, overtime pay, and many other differentials.
What Is Net Salary?
Net or in-hand salary refers to the amount that salaried individuals receive after TDS deductions. Also known as take-home salary, this income is the ultimate amount an individual takes home after tax deductions, provident funds, and other deductions.
Net income is lower than the gross amount as it is calculated after deductions. However, in some instances, both gross and net salaries can be equal if there is no income tax deduction. This is possible when the wages of individuals do not come under income tax slabs.
Now that individuals have learnt about gross and net income, let’s focus on comparing net salary vs. gross salary.
What Is the Difference Between Gross Salary and Net Salary?
Follow the table mentioned below to get a clear idea about gross vs net salary.
Gross Salary vs Net Salary
| Parameters | Gross Salary | Net Salary |
| Definition | It is the amount that individuals earn after adding benefits and allowances but before deductions of any tax. | It is the amount that employees take home after deducting provident funds, insurance, etc. |
| Components | The components of gross amount include House Rent Allowance, Conveyance Allowance, and Medical Allowance, among others. | The components of net income include Income Tax, Professional Tax, Provident Fund, Pension, etc. |
| Amount | It is the maximum amount of the salary that includes all taxes. | Usually, It is a lower amount than gross pay after deducting all taxes. |
| Mode of Calculation | Employers calculate it by adding all payments. | Employers calculate it by subtracting penalties and compulsory taxes. |
| Formula to Calculate | Gross Salary = Basic Salary + House Rent Allowances + Other Allowances | Net Salary = Gross Salary - Applicable Deductions |
| Benefit | Through gross income, individuals get holiday pay, incentives, etc. | In the case of net income, individuals need not pay tax at different levels as a substantial amount is deducted before the ultimate payment of salary. |
Frequently Asked Questions
What is the alternative formula for calculating gross income?
The alternative formula to calculate gross salary is –
[CTC-(EPF + Gratuity)]
Is leave encashment a part of the gross income?
Yes, leave encashment is a part of gross income.