What is Gross Salary: Everything Explained

Salary is an amount paid to an employee in return for his/her work as specified in the job offer or service contract. But one must understand the various parts of a salary, namely the gross salary, net pay and CTC. In this article, we will share in-depth information about gross pay.

What Is Gross Salary?

Gross salary is an amount paid to an employee before any voluntary or involuntary deductions. This part of the salary includes income from all sources. It is not only confined to any income that is received in cash. Gross income also includes indirect benefits or services provided to an employee.

What Are the Components of Gross Salary?

The components of gross pay are mentioned in the following table.

Components With Direct Benefits	Components With Indirect Benefits
Basic salary	Performance linked incentives or bonus
Dearness allowance	Overtime payments
House rent allowance (HRA)	Accommodation provided by the employer
Leave travel allowance (LTA)	Utility bills such as electricity and water paid by the employer
Telephone or mobile phone allowance	Arrears of salary
Conveyance allowance	Meal coupons
Special allowances	Health care costs

Direct Benefits Under Gross Pay

Let us take a look at the components under direct benefits of gross income in detail below.

Basic Salary: The basic salary is an amount that forms the core of your salary. This part of a salary comprises about 30-45% of a CTC. Provident fund gets calculated on Basic + DA.
Dearness Allowance (DA): A dearness allowance is paid to employees to negate the effect of inflation. Inflation is a phenomenon that makes the price of general goods rise by a certain amount each year. With an increase in prevailing price, an employee's salary also needs an increment to survive comfortably. DA also varies according to your location.
HRA (House Rent Allowance): A House Rent Allowance or HRA is also one of the most essential components of salary paid to an employee to cover the accommodation expenses. HRA also offers tax benefits to employees to a certain extent.
Leave Travel Allowance (LTA): This is an allowance offered to employees by their employers to cover travel expenses during vacation. An employee will be required to provide the original bills to his/her company to claim the LTA. The LTA amount varies from one employer to another depending on the designation of an employee.
Conveyance Allowance: Employees spend considerable money travelling from their residence to their office every day. Any natural disaster or unruly weather makes travelling all the more difficult and expensive. Therefore, various companies pay this allowance to cover a portion of employees' travel expenses. An employee can reimburse a part of their travel expenses as per the amount offered as conveyance allowance. A company generally pays this allowance if it does not provide any transport facility to its employees.
Special Allowance - Special allowance is a fixed amount given to employees over and above the basic salary to meet specific daily requirements.
Mobile Allowance – This is a part of employers' gross salary to cover a certain percentage of mobile expenses.

Indirect Benefits Under Gross Pay

Performance-linked Incentives or Bonuses: This type of incentive or bonus is paid to an employee based on performance. The amount varies with the work and designation of an employee.
Overtime Payments: Employees can get overtime payments for working extra hours beyond their regular shift timings.
Health Care Costs: Companies offer healthcare benefits to employees to provide them financial cover against hospitalisation due to any disease or accident. These benefits are in the form of health insurance or mediclaim. You can cover your family members like spouse and children under such schemes.
Company Accommodation: Many firms offer accommodation to employees when they are relocating for a job. With this benefit, one can stay in the company residence for a certain period.
Meal Coupons: Firms often provide meal coupons to employees these days as a part of employee welfare initiatives.

How to Calculate Gross Salary?

To understand the gross pay better, check the example below.

For instance, mentioned below is Arjun’s CTC.

Components of Salary	Yearly Amount (in ₹)
CTC	7,00,000
Basic Pay	5,00,000
Travel Allowance (TA)	50,000
House Rent Allowance (HRA)	45,000
Medical Allowance	45,000
Leave and Travel Allowance (LTA)	60,000
Provident Fund Contribution (PF)	84,000
Gratuity	29,629

Here, Arjun's CTC is the sum of all the salary components listed above, which amounts to ₹7,00,000. To arrive at Arjun's gross income, the PF contribution and gratuity will get deducted from CTC.

So, according to the gross salary formula:

Gross Pay = ₹7,00,000 - (₹84,000 + ₹29,629) = ₹5,86,371

So, this is how you can calculate your gross salary. We are sure that the above information has given a clear picture about this component of salary. Knowing about the various components of your salary will help you understand your savings, net income, etc. and manage your finances accordingly.

Frequently Asked Questions

All

Is CTC considered as an actual package?

CTC is the total salary package paid to an employee. It includes all cash and non-cash benefits.

Does my Gross Pay include PF?

No. Gross salary includes basic pay, DA, and various other allowances but excludes PF and Gratuity.

Is in-hand salary less than Gross Income?

Yes, your take-home or in-hand salary is the amount after deductions for professional tax, income tax or TDS and PF.