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Salary is a periodic payment from an employer to its employees for their work as specified in the contract. Want to know about net salary in detail? if yes, then keep reading!
Net salary is actually known as take-home salary. It is an amount credited to an employee’s bank account (a salary account) every month. A firm offers this sum of money to an employee employed in it after deducting components like EPF, professional tax, ESIC, etc. However, some firms do not provide EPF or ESIC, and some states do not levy any professional tax.
Knowing about net salary is critical as this amount helps to take care of EMIs, household expenses, travel expenditure, and various other daily needs.
When a CTC offer is made, you must enquire about net salary as various components in the salary structure may be confusing. If the CTC is good, but the take-home part is less, it may add to financial problems. So, it is always necessary to get things clarified beforehand.
|
Net Salary |
Gross Salary |
|
It is the final payment made after deductions for EPF, ESIC, Professional Tax, Income Tax or Tax Deducted at Source and others. |
It is an amount paid to a person by an employer before making any deductions. |
|
Net pay is lower than gross pay. |
Gross pay is the sum of all benefits and allowances before any deduction. |
To know about net salary, it is important to know how to calculate. Here, we have shared one example for better understanding.
Example -
Arpit works at an EdTech firm. His gross salary yearly is ₹3,50,000. So, what is his net payment? Check the calculation below.
Gross salary is -
|
Salary Components |
Value |
|
Basic Salary |
₹30,000 |
|
HRA |
₹1,20,000 |
|
LTA |
₹60,000 |
|
Special Allowance |
₹1,40,000 |
Deductions are-
|
Deduction Components |
Value |
|
Employee Provident Fund |
₹21,600 |
|
Profession Tax |
₹2,400 |
|
Insurance Premium |
₹3,000 |
|
Special Allowance |
₹1,40,000 |
Total (B) = ₹27,000 (Sum of all deductions)
Now, you will have to just subtract the gross salary with the total of all deductions.
Net Salary = Total (A) – Total (B)
= ₹ (3,50,000 - 27,000)
= ₹3,23,000
So, the net pay of Arpit is ₹3,23,000
The calculation of net salary depends on the following factors mentioned below.
Net pay is the amount after various deductions like PF, Income Tax, etc. We have mentioned the sum total of gross salary is to be deducted from eligible deductions to get the net pay.
The components that get deducted from the gross salary include:
Now, net salary is the take-home part after the following deductions as mentioned above. However, some of the components like incentives and overtime payments are variables and not fixed.
While assessing your income, a bank will consider net pay and not gross pay. After reviewing your take-home salary, a bank will approve loans.
In the case of loans and insurance, one has to pay EMIs or a certain premium. To be able to pay them will require financial stability through a substantial in-hand salary. Thus, a take-home salary is critical to a loan or insurance application and not a gross salary.
That’s all for now! Knowing about net salary is very critical. We are sure that you are now completely aware of net pay, its calculation and its importance.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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