Gross Salary - Definition, Components, Calculation, Differences
Gross salary is the total amount an employee earns before any deductions are applied. This includes basic salary, house rent allowance, special allowance, performance bonus, and other benefits. The amount that finally comes into the employee's bank account after deductions is called the net salary.
What is Gross Salary?
Gross salary is the full salary paid by an employer to an employee before subtracting taxes or deductions. It includes income received in cash as well as certain non-cash benefits.
So:
Gross Salary = Earnings Before Deductions
Net Salary = Earnings After Deductions (the take-home amount)
Components of Gross Salary
Component
Description
Basic Salary
Fixed core part of the salary. Fully taxable.
House Rent Allowance (HRA)
Given to employees to cover rental living expenses.
Conveyance or Transport Allowance
Given to cover travel costs between home and workplace.
Special / Other Allowances
Extra allowances given as part of salary. Usually taxable.
Performance Bonus / Incentives
Extra earnings based on employee performance.
Statutory Bonus
Bonus paid as per law for eligible employees.
Arrears
Given when a salary hike is applied from a past date.
Perquisites (Perks)
The company provided benefits like a car, housing, phone, insurance, etc. Tax may apply.
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EPF Contribution
Both employee and employer contribute 12 percent of basic salary to the Provident Fund.
Employer PF contribution is not counted in gross salary.
What is Not Included in Gross Salary
Excluded Component
Why is it excluded
Medical reimbursements
Treated as claims, not salary.
Leave Travel Allowance (LTA)
Considered separately for tax exemption.
Gratuity
Paid only on exit or retirement.
Free meals/coupons
Considered as benefits, not salary.
Leave encashment
Tax treatment depends on employment status.
How to Calculate Gross Salary
Gross Salary = Basic Salary + HRA + Allowances + Bonus + Perquisites
Example
Salary Component
Amount (₹)
Basic Salary
20,000
HRA
9,287
Transport Allowance
1,200
Statutory Bonus
1,650
Gross Salary = 20,000 + 9,287 + 1,200 + 1,650
Gross Salary = ₹32,137
PF and Income Tax are not added to gross salary.
Difference Between Gross Salary and Basic Salary
Basis
Gross Salary
Basic Salary
Meaning
Total salary before deductions
Fixed core salary amount
Includes Allowances
Yes
No
Taxability
Mostly taxable
Fully taxable
Percentage of CTC
Usually higher portion of CTC
Generally 40 to 60 percent of CTC
Changes Based on Performance
Can change due to bonuses and incentives
Mostly stable
PF Calculation Impact
PF does not change based on gross salary
PF is calculated as a percentage of basic salary
Difference between Gross Salary and Net Salary
Basis
Gross Salary
Net Salary (Take Home)
Meaning
Salary before deductions
Salary after deductions
Formula
Basic + HRA + Allowances + Bonus
Gross Salary minus deductions
Deductions Applied
No
Yes
Credited to Bank
No
Yes
Practical Use
Shows total compensation
Shows actual usable amount
Depends On
Company salary structure
Tax, PF, professional tax and other deductions
Income Tax on Salary
Income from salary is taxable under the Income Tax Act, 1961.
Employees can reduce taxable income through: