Gross salary is the aggregate amount of compensation paid by an employer or company towards the employment of an employee. Gross salary is the total amount of money your employer pays you before any deductions are made. It's essentially the raw number before taxes, provident fund contributions, and other social security payments are taken out. Think of it as the entire financial package your company offers you in exchange for your services. The aggregate compensation would be the Cost to Company or CTC. An employee’s take-home pay would differ from the CTC. The employees’ CTC is the gross amount, while the amount of salary one gets to take home is the net salary. In simpler words, gross salary is the monthly or yearly salary before any deductions are made from it.
CTC (Cost to Company) is a broader term that includes the total amount your employer spends on you. CTC includes components like your gross salary, employer's provident fund (EPF) contributions, gratuity, bonuses, and other benefits like health insurance, food coupons, etc.
However, CTC is not the same as the money you actually take home. Remember, deductions will be made from your gross salary to arrive at your net salary, which is what you actually receive in your bank account.
Direct benefits
Indirect benefits
Basic Salary: Basic salary refers to that portion of the CTC of an employee that excludes all allowances and perquisites paid to an employee. The basic salary is not subject to any deductions or qualifies for any exemptions. Almost always, an individual’s basic salary is lower than the take-home salary or gross salary.
Perquisites: Perquisites are benefits provided to an employee in addition to the basic salary and specific allowances. These can be termed as benefits received by an employee as a direct result of his/her stature in an organisation. These perquisites are monetary or non-monetary benefits payable in addition to the salary and allowances to an employee.
Salary Arrears: An employee becomes entitled to arrears due to the increment in the salary. Arrears can be defined as an amount paid to an employee as a result of an increment or hike to their salary.
House Rent Allowance: House rent allowance or HRA is generally granted by an employer to an employee to provide for the cost of accommodation. The HRA received by an employee can be used for meeting the rent of residential accommodation at the place of work.
There are certain expenses, which an employer incurs towards the welfare of the employees in the organisation. These expenses will not be included in the CTC of an employee.
Examples of such components are:
To understand the calculation of gross salary and net salary better, let us take the help of an example:
Arun works at an IT firm. His gross salary per anum is Rs 6,20,000 while his net take-home is just Rs 5,93,000.
Let’s take a look at his salary components:
Basic salary | Rs 3,00,000 |
House rent allowance | Rs 1,20,000 |
Leave and travel allowance | Rs 60,000 |
Special allowance | Rs 1,40,000 |
Total (A) | Rs 6,20,000 |
Deductions: | |
Provident fund | Rs 21,600 |
Profession tax | Rs 2,400 |
Insurance premium | Rs 3,000 |
Total Deductions (B) | Rs 27,000 |
Net salary per annum (A)-(B) | Rs 5,93,000 |