Gross Salary is the total earnings an employee receives before any deductions are made. Your gross salary plays a huge role when you’re budgeting or filing taxes.
Understanding the exact breakdown of your gross salary, its components and its structure is essential for managing your finances effectively, which is what we’re going to cover in this article.
What’s Included In Gross Salary?
These are the components that form part of gross salary:
1. Basic Salary
The basic salary is the fixed amount payable to an employee before any allowance or perquisites are added. The basic salary is not subject to any deductions.
2. House Rent Allowance (HRA)
HRA is a major salary component of the gross salary structure. It is an allowance that covers the housing expense of an employee. This is applicable to both salaried and self-employed employees.
3. Special Allowances
Special allowances are a fixed amount allocated to an employee over the basic salary to meet different needs. This includes conveyance allowance, transport allowance, children's education allowance, outstation allowance, etc.
4. Perquisites
Perquisites are benefits provided to an employee over and above their basic pay These benefits can be taxable or non-taxable depending on their nature.
Some of these benefits include the supply of gas, water, and electricity.
5. Special Arrears
Arrears are the amount that an employee gets on an increment in salary or backdated pay adjustment. When an employee receives a salary raise that is applied retroactively, then the difference for the previous months is arrears.
6. Bonus
Bonus is a performance-based incentive given to employees. Bonuses are added to gross salary when they are paid, temporarily increasing the gross salary for that month or period. There are many types of bonuses like performance, profit-sharing, retention, referral, etc.
Components Excluded From Gross Salary
There are certain components that do not form part of gross salary, such as:
- Travel Reimbursement
- Medical Reimbursement
- Gratuity
- Insurance Premiums
- Fringe Benefits
Deductions From Gross Salary
Certain deductions from the gross salary are made to arrive at the net or take-home salary. These deductions include:
- Income Tax - These are taxes levied by the government on the income earned by an employee.
- Insurance Premiums - Insurance premiums include health and life insurance costs covered by the employer for their employees.
- Professional Tax - This is a tax levied by the State Government of India on salaried employees.
- Provident Fund - This forms part of a retirement savings scheme where both employer and employee contribute a small percentage of the basic pay.
How To Calculate Gross Salary?
To calculate your gross salary, you need to include all the components that fall under gross salary.
Let’s understand this with an example. Let's suppose, Shivam who works in marketing has these salary components:
Basic Salary | ₹30,000 |
House Rent Allowance | ₹12,000 |
Special Allowances | ₹5,000 |
Performance Bonus | ₹15,000 |
Total | ₹62000 |
Shivam’s gross salary will be the sum total of all the components, i.e; ₹62000.
Difference Between Gross Salary & Net Salary
Point of Difference | Gross Salary | Net Salary |
Meaning | It is the monthly or yearly amount payable to an employee before deductions | It is the monthly or yearly amount payable to an employee after deductions |
Components | Basic salary, allowances, bonus | Gross salary minus tax deductions, provident fund |
Calculation | Gross salary = Basic salary + Allowances + HRA | Net Salary = Gross Salary - Professional Tax - Income Tax - Provident Fund |
Difference Between Gross Salary & Basic Salary
Point of Difference | Gross Salary | Basic Salary |
Meaning | It is the monthly or yearly amount payable to an employee before deductions | It is the fixed amount before any addition or deductions |
Components | Basic salary, allowances, bonus | Standalone fixed amount |
Final Thoughts
It is extremely important to understand the structure of your gross salary as it helps in planning for taxation and budgeting. By gaining clarity on the difference between gross and net salary, one can understand their tax deductions and implications better.