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What is Gross Salary – Know How to Calculate Gross Salary or CTC

Updated on :  

08 min read.

Gross salary is the aggregate amount of compensation discharged by an employer or company towards the employment of an employee. The aggregate compensation would be the Cost to Company or CTC to employees. 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.

Various components of gross salary

Direct benefits

  • Basic salary
  • House Rent Allowance (HRA)
  • Leave Travel Allowance (LTA)
  • Telephone or mobile phone allowance
  • Vehicle allowance
  • Special allowances

Indirect benefits

  • Performance linked incentives or bonus
  • Overtime payments
  • Accommodation provided by the employer
  • Utility bills such as electricity and water paid by the employer
  • Arrears of salary
  • Meal coupons

Understanding components of gross salary

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.

Other benefits provided by an employer

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:

  • Snacks, beverages, and other refreshments provided by the employer during office hours.
  • Reimbursement of expenses incurred by the employee on travel and food during official/business tour.

How to calculate gross salary and net salary?

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 salaryRs 3,00,000
House rent allowanceRs 1,20,000
Leave and travel allowanceRs 60,000
Special allowanceRs 1,40,000
Total (A)Rs 6,20,000
Provident fundRs 21,600
Profession taxRs 2,400
Insurance premiumRs 3,000
Total Deductions (B)Rs 27,000
Net salary per annum (A)-(B)Rs 5,93,000

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