What is Gross Salary?

Gross Salary is the amount received by an employee before any voluntary or mandatory deductions are made. These deductions could be income tax, Provident Fund, medical insurance, etc. 

Gross salary is calculated by adding basic salary, house rent allowance, and other allowances. Net salary is the final amount that is credited after all deductions are made.

Components of Gross Salary

 These are the components that constitute gross salary: 

1. Basic salary

Sum paid to an employee that does not include bonuses, benefits, perks, and incentives.

2. HRA or House Rent Allowance

The sum is paid towards covering the housing expenses of an employee.

3. Provident fund contribution

The employee’s share of the salary towards the Employment Provident Fund. It is 12% of the fixed components of the employees’ salary. 

4. Special allowance

This component of the salary includes additional allowances offered by the company. This may include transport, conveyance, and outstation allowance, among others. 

5. Special arrears

This may include an additional sum accruing from an increment in the salary of the employee.

6. Perquisites

Perquisites may include benefits offered over and above the basic salary. In most cases, these are monetary components. However, there could be non-monetary components also – paid as perquisites to employees in some companies.

7. Bonus

An employee may receive an additional sum as a bonus in a year. This amount is linked to employees’ performance in the company.  

8. Pension

Pension is the amount paid by an employer to a retired employee. Pension is an important factor in post-retirement financial security. Most government jobs and some private sector jobs offer retirement benefits.

Components Excluded from Gross Salary

Here are a few things that are not included in gross salary:

  1. Medical reimbursement
  2. Leave travel allowance
  3. Leave encashment at the time of retirement
  4. Free meals or snacks provided by the employer
  5. Gratuity
  6. Benefits like company discounts, health insurance, etc

How is Gross Salary Calculated?

Gross salary includes the basic salary and allowances before deductions like professional tax, TDS, provident fund, etc. The basic salary is the base income of the fixed component of the whole compensation offered to employees.

 Gross Salary = Basic Salary + HRA + Other Allowances

Let’s take the example of an employee whose annual CTC is Rs 6,00,000, which comes up to Rs 50,000 per month.

Component Amount (₹)
CTC (Cost To Company) 6,00,000
Basic Salary 4,00,000
Allowances
* House Rent Allowance (HRA) 1,20,000
* Travel Allowance (TA) 30,000
* Other Allowances (Optional) 50,000
Gross Salary 6,00,000
Deductions
* Professional Tax (2,400)
* Employee Provident Fund (48,000)
Total Deductions (50,400)
Net salary per annum 5,49,600

Differences Between Basic Salary and Gross Salary

Feature Basic Salary Gross Salary
Definition Basic salary is the fundamental salary paid to an employee before adding benefits and allowances. Gross salary is the total salary paid to an employee before tax deductions.
Components Basic salary is only the core salary components. Gross salary includes base salary, bonuses, allowances (HRA, travel, etc.), and other perks.
Used for Calculations Basic salary is used as the base for calculating some allowances (HRA) and deductions (EPF). Gross salary is not directly used for calculations.
Variability Basic salary is usually fixed. Gross salary can vary depending on bonuses, overtime pay, and allowances.
Tax Deductions Taxes are not deducted from basic salary. Taxes are deducted from gross salary.

Differences Between Gross Salary and Net Salary 

Feature Gross Salary Net Salary (Take-Home Pay)
Definition Gross salary is the amount before any deductions Net salary is the amount after all deductions are withheld
Components Gross salary includes base salary, bonuses, allowances (HRA, TA, etc.) Net salary includes only base salary after deductions.
Taxes Taxes are not included in gross salary Taxes are deducted from net salary.
Importance Gross salary shows total pre-tax earnings Net salary reflects actual take-home pay for budgeting

Taxes on Salary

The government of India levies two kinds of taxes: direct and indirect taxes.

Direct taxes are levied on your income or wealth and paid directly to the government, while indirect taxes are hidden within the price of goods and services you buy.

Taxes levied on income come under direct taxes – called income tax. Employees can opt for tax-saving avenues like equity-linked savings schemes (ELSS) or PF contributions. RazorpayX Payroll has a free tax optimizer tool powered by AI to help you with the best tax saving strategies.

Read more: Income Tax Slabs

Check out R.A.Y

Why are manual payroll calculations complex?

As we can see, there are complex calculations involved in preparing payroll for a company’s employees, and it gets more intricate as the size of the company grows. 

It is the most time-consuming task, as the HR department has to deal with several components and also make sure that errors do not creep in when calculating monthly gross and net salaries. When done manually, the margin for human error increases substantially for large companies. Also, tax laws are not simple and straightforward. The calculations have to take into account compliance with the changing tax rules and policies. 

Payroll software systems – What every company needs

To make payroll calculations simple, quick, and error-free, companies are using advanced payroll software systems that can automate salary calculations and take care of payroll compliances. 

Choosing the right automated payroll software is important to get the best value for your investment in this system, which is a must-have for all types of companies. RazorpayX Payroll is one of the most reliable and popular automated payroll software systems available today.

Why RazorpayX Payroll is the preferred choice?

Companies choose the RazorpayX Payroll as it is user-friendly, comprehensive, and designed to take care of all the payroll management elements in a company. 

1. Makes the job of the HR team easy

With RazorpayX Payroll, the HR team can quickly update employee details on the system and provide employees access to their information. Employees can view it on the RazorpayX Payroll dashboard. Onboarding of new employees is done quickly, while it also minimizes inquiries and consultations with the other departments involved in payroll preparation. 

With RazorpayX Payroll, the hassles associated with reconciliation and TDS deduction is minimized significantly. The finance managers only have to load the correct amount in the payroll account, and the system carries out the disbursals automatically when the software executes the payroll.

2. Has a short learning curve

RazorpayX Payroll takes the hassle out of getting acquainted with a new payroll system. While handling the other popular payroll systems may involve a long learning curve, that’s not the case with this software. It has an intuitive dashboard and a smooth & friendly interface designed to make the whole learning process simple and fast. 

3. A boon for employees

The system is also a boon for employees who are often in the dark about payroll information and have to spend time with the relevant department and managers to get answers to their queries. 

With RazorpayX Payroll, employees can get all the information and updates they need in one place. They can access their payslips in a few clicks and need not run from pillar to post for payroll related information.

RazorpayX Payroll USPs

RazorpayX Payroll is good for startups and small businesses as it offers the entire bouquet of payroll management solutions in one place at affordable pricing. The key features of the software are:

Now it’s time to automate your payroll with RazorpayX Payroll and spend your valuable time on accelerating business growth.

Frequently Asked Questions 

What is CTC?

Cost to Company or CTC is the cost a company incurs when hiring an employee.

How is the monthly salary calculated?

You get the monthly salary by dividing the total salary for the year by the total number of months in the calendar.

What are CTC and gross salary?

Gross salary is the accumulated amount of compensation discharged by an employer or company towards the employment process of an individual. The overall compensation is nothing but the cost to the company or CTC to employees.

What are net and gross pay?

Net salary is the overall amount that an employee takes home. Whereas gross salary is the figure derived after totaling all the allowances and benefits before any tax deduction.

How is gross salary calculated?

Gross salary is calculated by adding an employee's basic salary and allowances prior to making any taxable deductions.

What is basic salary and gross salary?

Basic salary is a rate of pay agreed upon by an employer and employee that does not include any overtime or extra compensation. Whereas gross salary is the amount paid to an employee before any tax or other deductions that includes overtime pay and bonuses.

Does gross pay include benefits?

Yes, gross pay does include benefits like medical allowance, conveyance allowance, etc.

How to calculate gross income?

To calculate your gross income, simply add up all income earned before taxes and deductions. This includes your salary, wages, bonuses, commissions, and any income from self-employment or investments like interest or dividends.

What are the indirect benefits of gross salary?

Gross salary, though not your take-home pay, influences several indirect benefits. It can affect your eligibility for loans, as lenders consider your pre-tax income. It also plays a role in negotiating a higher salary, since a strong gross salary shows your value. Additionally, your gross salary determines your contributions to social security benefits, impacting your future retirement income.

Is gross income more than take home salary?

Yes, gross income is always higher than take-home salary. Think of gross income as the total amount earned before any taxes or deductions are taken out. Take-home salary, on the other hand, is what actually lands in your pocket after those deductions are subtracted from your gross income.

Author

Writer-by-chance and overthinker-by-choice, raging a war against the Pineapple-on-pizza brigade

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