Table of Contents
What is Gross Salary?
Gross Salary vs Net Salary
Gross Salary vs CTC
Components of Gross Salary
How to Calculate Gross Salary (With Example)
Reporting Gross Salary for Income Tax
Gross salary is one of the most common terms you will see on a payslip or offer letter. It refers to the full amount your company offers before any deductions like taxes or contributions.
Yet, many people still find it confusing. It is often mistaken for net salary or even CTC. But each term means something different. Understanding gross salary is important because it tells you what you are actually earning before anything is taken out.
In this blog, we will explain gross salary meaning, how it is calculated, what it includes, and how it compares with net salary.
What is Gross Salary?
Gross salary is the total amount your employer agrees to pay you before any deductions are made. It is the full amount mentioned in your offer letter and shows up on your payslip every month. But it is not the amount you take home.
This salary includes everything you are paid – basic salary, allowances, and any additional earnings or benefits. It also includes fixed monthly parts and variable elements like bonuses. However, it doesn’t account for deductions like income tax, provident fund (PF), or professional tax.
Here is an example Gross salary –
Let’s say your monthly gross salary is ₹45,000.
Out of this, deductions like ₹3,600 for PF and ₹1,500 for tax may apply.
So your net salary (in-hand) will be less than ₹45,000. But that ₹45,000 is still your official gross pay.
In short, gross salary tells you what you earn on paper, not what you receive in your bank account.
Gross salary highlighted in red on a payslip
Fun Fact About Gross salary–
In India, your gross salary is used to calculate income tax and is also checked when you apply for loans, credit cards, or visas – even if you don’t take that full amount home.
Gross Salary vs. Net Salary
Gross salary is your total earnings before any deductions. Net salary is what you actually get in your bank account after all the cuts. It is also called take-home pay.
This is what remains after all the deductions are made from your gross salary. It is calculated after subtracting things like income tax, employee provident fund (EPF) and professional tax from your gross salary.
Note – In India, EPF deductions are usually 12% of the basic salary. Employers may also deduct gratuity contributions (around 4.81%).
Here is a quick example of Gross Salary & Net Salary
- Gross Salary = ₹50,000
- Deductions = ₹5,000 (tax + PF + others)
- Net Salary = ₹45,000
Gross salary vs net salary comparison table.
Gross Salary vs CTC
CTC stands for Cost to Company. It is the total amount a company spends on you in a year. Gross salary is just a part of it.
Your gross salary includes what you receive before deductions – like basic pay, HRA, and allowances. But CTC includes even more – things you don’t get as cash. This can be employer contributions to PF, gratuity, health insurance premiums, or meal cards.
Here is a quick example of Gross Salary & CTC –
- CTC = ₹7,00,000
- Employer PF Contribution = ₹50,000
- Gratuity + Insurance + Other Benefits = ₹1,00,000
- Gross Salary = ₹5,50,000
CTC is not the amount you earn or take home. It includes both what you get and what the company pays on your behalf.
Let’s compare both gross salary and CTC.
Components of Gross Salary
Gross salary is made up of different parts. Each part adds to your total earnings before any deductions. Some of these are fixed every month, while others may vary.
Let’s look at the common components that make up your gross salary –
Basic Salary – This is the fixed part of your monthly pay. It forms the base for calculating other allowances and is fully taxable as part of your gross income.
House Rent Allowance (HRA) – HRA is given to help employees pay rent. If you live in a rented home – part of this amount may be tax-exempt under certain conditions.
Special Allowance – This is an adjustable amount added to balance your salary structure. It does not fall under any specific category and is usually fully taxable each month.
Perquisites (Taxable) – Perks such as a company car or rent-free housing may be included in gross salary if they are taxable under income tax laws.
Performance Bonus or Incentives – Bonuses reward you for performance and may be paid monthly or yearly. They are added to your gross salary and taxed like regular income.
Salary Arrears – Arrears refer to backdated salary payments due to a raise or correction. They are added to your gross salary once the adjustment is processed.
Leave Travel Allowance (LTA) – LTA covers travel costs during approved leave. It is part of gross salary, but the amount can be exempt from tax when claimed with bills.
Medical Allowance – If your employer gives you a fixed monthly medical allowance, it is part of gross salary. Reimbursed medical bills, however, are not included.
Travel or Conveyance Allowance – This allowance helps cover your daily travel costs. If paid regularly, it is part of gross salary and may be partially tax-exempt.
Components Excluded from Gross Salary
These items may benefit the employee but are not counted as part of gross salary –
Gratuity – This is paid only after five years of continuous service. It is a retirement benefit and not included in your monthly or annual gross salary.
Leave Encashment – Money received for unused paid leave. It is typically paid on resignation or retirement and is not included in regular gross salary.
Reimbursement of Medical Bills – If your company reimburses actual medical bills, those are not fixed pay and are excluded from gross salary.
Free Meals or Food Coupons – Meal vouchers like Sodexo or company-sponsored meals are considered non-cash benefits and are not counted as part of gross salary.
Employer’s PF Contribution – Only your contribution is part of deductions. The employer’s share is not included in gross but is counted in total CTC.
How to Calculate Gross Salary (With Example)
Gross salary is calculated by adding all the fixed and variable components of your salary that you receive before any deductions are made.
Formula to Calculate Gross Salary –
Gross Salary = Basic Salary + HRA + Special Allowance + Bonus + Incentives + Perquisites + Any Other Fixed Allowances
Example 1 – Salaried Employee (Monthly)
Let’s say Elena works for ABC Pvt. Ltd. Her monthly salary structure looks like this –
Now, let’s use the formula.
Gross Salary = ₹28,000 + ₹10,000 + ₹4,500 + ₹1,000 + ₹2,500 + ₹1,500 = ₹47,500 per month
So, Elena’s gross monthly salary is ₹47,500.
Her net salary would be lower after PF and tax deductions.
Example 2 – Hourly Employee (Annual)
Raya is a freelance consultant who charges ₹1,200 per hour and works 30 hours per week.
To calculate his monthly and annual gross salary –
- Weekly Pay = ₹1,200 × 30 = ₹36,000
- Monthly Pay = ₹36,000 × 4 = ₹1,44,000
- Annual Gross Salary = ₹1,44,000 × 12 = ₹17,28,000
So, Raya’s gross salary for the year would be ₹17,28,000, assuming he works consistently every week.
Reporting Gross Salary for Income Tax
When you file your income tax return (ITR), it is your gross salary that needs to be reported – not your net or in-hand salary. This is because income tax is calculated on your total earnings before deductions.
Your employer calculates the tax based on your gross salary and deducts it every month as TDS (Tax Deducted at Source). At the end of the financial year – they issue Form 16, which summarizes your total income, deductions, and the tax already paid on your behalf. You will need this form while filing your return.
Deductions You Can Claim to Reduce Tax
Even though your tax is calculated on your gross salary – you can reduce your taxable income by claiming deductions under the Income Tax Act. Here are the common ones –
Section 80C – You can claim up to ₹1.5 lakh per year through investments and expenses like –
- Employee Provident Fund (EPF)
- Life Insurance Premiums
- ELSS (Equity-Linked Savings Schemes)
- Home Loan Principal
- PPF, NSC, Tuition Fees, etc.
Section 80D – If you pay health insurance premiums for yourself, your spouse, children, or parents – you can claim a deduction here.
HRA Exemption – If you live in a rented house, you may claim part of your House Rent Allowance as tax-free – based on rent paid and city of residence.
So, while your gross salary is fully taxable by default – these deductions help you reduce the total amount of tax you pay.
FAQs
Q. What is the meaning of gross salary?
Gross salary is the total amount you earn from your employer before any deductions. It includes your basic pay, allowances, and bonuses, but not taxes or PF cuts.
Q. Is gross salary same as CTC?
No. Gross salary is what you earn before deductions. CTC (Cost to Company) includes gross salary plus employer contributions to PF, gratuity, insurance, and other benefits.
Q. Is gross salary monthly or yearly?
It can be both. Gross salary may be shown as a monthly figure on your payslip and as an annual figure in your offer letter or tax documents.
Q. What is the difference between gross salary and basic salary?
Basic salary is the fixed core part of your pay. It doesn’t include any allowances or benefits. Gross salary is the total amount you earn before deductions, which includes basic salary plus HRA, allowances, bonuses, and other earnings.
Q. Why is my gross salary higher than my net salary?
Because deductions like income tax, provident fund, and professional tax are subtracted from your gross salary. What’s left after these cuts is your net salary or take-home pay.
Q. Where can I find gross salary in my payslip?
You can find your gross salary on the top section of your payslip – usually under “Earnings” or “Total Earnings.” It shows your total pay before any deductions.
