Difference between Gross Salary and Net Salary

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By Hiral Vakil on February 12, 2020

Gross Salary

Gross Salary is the amount of salary after adding all allowances and benefits but before deducting any mandatory deductions/taxes. It includes allowances like House Rent Allowance (HRA), Leave Travel Allowance (LTA), Conveyance Allowance, Dearness Allowance, Special Allowance and benefits like Bonus, Overtime Pay, Medical Insurance, etc.

Gross Salary = Basic Salary + All Allowances + All Benefits

Net Salary

Net Salary is the amount that employee takes home. It equals to gross salary minus all mandatory deductions like employee’s contribution to Employee Provident Fund (EPF), Tax Deduction at Source (TDS), Professional Tax, Entertainment Allowance. Net Salary is usually lower than Gross Salary.

Net Salary = Gross Salary - Mandatory Deductions (Professional Tax+Employee Provident Fund+TDS)

Let’s take an example to understand the difference between Gross Salary and Net Salary:

Akash is a salaried individual. His salary package is of INR. 7,60,000 and following is his salary structure:

Particulars Amount
Basic Salary 6,00,000
Leave Travel Allowance (LTA) 60,000
Conveyance Allowance 19,000
House Rent Allowance (HRA) 66,000
Free Meal 15,000
EPF 72,000
Professional Tax 2,400
TDS 56,000

 

Following will be Gross Salary and Net Salary in case of Akash

Particulars Amount
Basic Salary 6,00,000
Leave Travel Allowance (LTA) 60,000
Conveyance Allowance 19,000
House Rent Allowance (HRA) 66,000
Free Meal 15,000
Gross Salary 7,60,000
Less: EPF (72,000)
Less: Professional Tax (2,400)
Less: TDS (56,000)
Net Salary 6,29,600
Monthly Net Salary 52,466

By understanding the difference between Gross Salary and Net Salary:

  • You can plan your investments. Which can help you utilize all eligible Chapter VI-A deductions and reduce the tax liability/TDS.
  • Get an idea about how much of your salary goes into mandatory savings like EPF, ESI every year.
  • You can also evaluate job offers to determine which one is more favourable on the basis of Gross salary and Net Salary.
Understand Different Salary Components

FAQs

1. Where can I find my Gross Salary and Net Salary?

You will be able to find both either in Salary Slip or Form 16. Employer provides salary slip or Form 16 to each employee. Using which you can find your Gross Salary and Net Salary.

2. How can I increase my Net Salary/Take Home Salary?

You can increase your Net Salary/Take Home Salary by planning your tax-saving investments u/s 80C and other Chapter VI-A deductions. This will reduce your taxable income and TDS on Salary. But it is only possible if you provide your investment declaration to your employer correctly in Form 12BB.