the number on the job offer letter is not the number that hits the bank account. gross salary is the headline figure. net salary is the actual amount received after deductions .
the difference can be significant. understanding the calculation helps with budgeting and tax planning.
what is gross salary
gross salary is the total earnings before any deductions . it includes basic salary, house rent allowance, dearness allowance, special allowances, and performance bonuses .
gross salary is not the same as cost to company. ctc includes employer contributions like provident fund, gratuity, and insurance . gross salary is ctc minus these non-cash components .
gross salary formula. gross salary = basic salary + hra + all allowances + bonuses .
example. if basic is ₹28,000, hra is ₹10,000, and other allowances are ₹7,000, gross salary is ₹45,000 .
what is net salary
net salary is the amount credited to the bank account every month . it is also called take-home pay or in-hand salary .
net salary formula. net salary = gross salary – all applicable deductions .
common deductions include :
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income tax (tds) deducted at source
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employee provident fund (epf) contribution
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professional tax (in applicable states)
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employee state insurance (esi) for eligible employees
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insurance premiums
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loan repayments
the step-by-step calculation
step 1. start with gross salary. add all earnings. basic. allowances. bonuses.
step 2. subtract tax. income tax is deducted as tds based on the chosen regime. under the new regime, the standard deduction of ₹75,000 is allowed . under the old regime, deductions like 80c, 80d, and hra can reduce taxable income .
step 3. subtract provident fund. employee contribution is 12% of basic salary and dearness allowance . this is mandatory for organisations with more than 20 employees .
step 4. subtract professional tax. this is a state-level tax, capped at ₹2,500 per year . it varies by state and salary slab. in maharashtra, the monthly deduction ranges from ₹175 to ₹200 for most employees .
step 5. subtract any other deductions. insurance premiums. loan repayments. voluntary contributions .
example. gross monthly salary of ₹75,000. epf at ₹3,600. professional tax at ₹200. tds at ₹4,000. total deductions = ₹7,800. net salary = ₹67,200 .
key differences at a glance
| point | gross salary | net salary |
|---|---|---|
| definition | total earnings before deductions | amount after all deductions |
| components | basic + hra + allowances + bonuses | gross – epf – tax – professional tax |
| amount | higher | lower |
| use | salary negotiation, ctc comparison | budgeting, actual disposable income |
what can be done
check the salary structure. basic should ideally be 40-50% of ctc . under the new labour codes, basic must be at least 50% of ctc . higher basic means higher pf and gratuity, which boosts retirement savings but lowers take-home pay .
choose the tax regime carefully. the new regime offers lower rates and a ₹75,000 standard deduction . the old regime allows deductions under sections 80c, 80d, hra, and others. the better choice depends on actual deductions .
claim professional tax deduction. professional tax paid is deductible under both tax regimes .
frequently asked questions
1. what is the difference between gross salary and net salary?
gross salary is total earnings before deductions. net salary is the amount received after all statutory and voluntary deductions .
2. what are the common deductions from gross salary?
income tax (tds), employee provident fund, professional tax, employee state insurance, insurance premiums, and loan repayments are common deductions .
3. why is my take-home salary lower than my ctc?
ctc includes employer contributions to pf, gratuity, and other benefits. these are not paid directly to the employee. take-home salary is usually 15-20% lower than ctc .
4. is professional tax deducted in all states?
no. professional tax is levied by state governments and varies by state. not all states impose it . the annual cap is ₹2,500 .
5. how can professional tax be claimed?
professional tax paid is deductible from taxable income under both old and new tax regimes . it reduces the overall tax liability.
