BAJAJ BROKING
February 12, 2025
6 mins read
Gross salary means the total money earned by an employee from his employer. It is calculated by adding his basic salary to all the allowances and bonuses Read more...he receives from his employer.
While filing income tax returns, employees mention their gross salary. All deductions (including income tax) are made from gross salary. Hence, it is extremely important to understand the concept of gross salary to manage investments and taxes well. Read less
The term “Gross Salary” refers to the total compensation paid by an employer to his employees, which includes their basic salary and many other components. Gross salary is an employee’s total compensation, but it does not tell us how much money he actually receives in his hands. Read this blog, as it talks about the components of gross salary, and how gross salary is different from net salary and basic salary.
An employee’s gross salary is the total amount of money he earns from his employer before any deductions are made from it for taxes and any other kind of social security payments.
Gross salary includes all kinds of income an employee gets from his employer, whether in the form of cash or non-cash. Hence, if an employer provides certain non-cash benefits to his employees, the same will be included in their gross salary. Now that we have discussed gross salary’s meaning, let us talk about its components.
Gross salary has several components, which are explained below in detail:
Basic Salary: This means that part of an employee’s cost to company (CTC) which does not include incentives, benefits, bonuses, and other perks paid by his employer. Hence, an employee’s basic salary is almost always less than his gross salary.
House Rent Allowance (HRA): The component of gross salary that helps an employee pay his cost of accommodation is called HRA. He can use it to pay rent for his accommodation.
Perquisites: Apart from the components listed above, an employer may pay monetary or non-monetary benefits to his employees, which fall in the category of perquisites.
Special Allowances: Often employers pay their employees allowances like conveyance allowance, transport allowance, outstation allowance, etc., which are included under special allowances.
Special Arrears: An employee becomes entitled to receive salary arrears when an employer increases his salary with effect from a past date. Hence, arrears are paid as a lump sum.
Bonus: A bonus paid by an employer to his employee (often on account of performance) is also included in gross salary.
Professional Tax: State governments in India impose a professional tax on the gross salary of individuals up to ₹ 2,500 per annum.
Leave Encashment: Employees mostly take leaves as per their employment contracts. However, if they take fewer leaves than they are allowed to, the untaken leaves can get accumulated, which they can get encashed when retiring or resigning. The leave encashment thus received is a part of an employee’s gross salary.
Certain benefits provided by an employer are excluded from an employee’s gross salary, which are mentioned below:
Any medical expenses reimbursed.
Gratuity.
Free meals, snacks, beverages, and other refreshments provided during office hours by an employer.
Any reimbursements made by an employer to an employee on account of travel/food expenses incurred by the latter during business/official tours.
An employee’s gross salary is calculated by adding his basic salary to all the allowances he earns before making any deductions. You can use this formula to calculate your gross salary:
Gross Salary = Basic Salary + House Rent Allowance + Other Allowances
Let us understand the calculation of gross salary with the help of the example given in the table below:
Components | In ₹ |
Basic Salary | 30,000 |
House Rent Allowance | 13,931 |
Transport Allowance | 18,00 |
Statutory Bonus | 2,475 |
Apart from basic salary, this employee is getting various allowances. If we add all of them together, we will arrive at a sum of ₹ 48,206, which is his gross salary.
A few things about gross salary calculation need to be kept in mind. First, neither employee’s own contribution to his provident fund nor his employer’s contribution is considered in calculating his gross salary. Second, the income taxes paid by an employee are not deducted from his gross salary.
The following table explains the key differences between gross and basic salary:
Gross Salary | Basic Salary |
Gross salary is the amount of money (including basic salary and various allowances) paid by an employer to his employee before making any deductions. | Basic salary is the money earned by an employee without considering any allowances paid by his employer. |
Gross salary includes all sorts of pay and benefits earned by an employee, like basic salary, overtime, commissions, & allowances. | Basic salary includes only the basic wages or pay of an employee. |
While filing for taxes, an employee has to add all the benefits and allowances he has received to his basic salary. Hence, his gross salary is far more important than his basic salary for tax purposes. | Basic salary is not as important as gross salary when it comes to tax because it does not include an employee’s benefits and allowances. |
Gross salary and net salary are important concepts. The following table throws light on the most important differences between them.
Gross Salary | Net Salary |
Gross salary is the total amount of money earned by an employee including his basic pay and all kinds of allowances and benefits before making any deductions. | Net Salary stands for the “net” amount received by an employee after making all sorts of deductions from his gross salary. |
It is calculated by adding an employee’s basic salary to allowances and benefits he receives. | It is calculated by subtracting all taxes and deductions from an employee’s gross salary. |
Having discussed gross pay vs. net pay, let us move further on this topic.
When people file income tax returns (ITR) in India, they report their gross salary and not their net salary. This is because gross salary is the money they earn before deductions like income tax.
While filing their ITR, people first mention their gross salary and then mention their deductions. Salaried individuals use several deductions provided under Section 80C and Section 80D. Under Section 80C, people get tax deductions for investing in National Saving Certificate (NSC), Public Provident Fund (PPF), and Equity Linked Saving Scheme (ELSS).
Section 80D provides tax deductions for premiums paid on medical insurance for self, parents, and family and for medical expenses paid for senior citizens.
For salaried individuals, it is extremely important to understand the concept of gross salary. Having a thorough understanding of gross salary helps them manage their taxes and finances efficiently. They should also be aware of its components and how it differs from take-home-salary and net salary.
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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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Share this article: 
The key components of an individual's gross salary are basic salary, house rent allowance, special allowances, perquisites, special arrears, and bonuses.
An individual’s gross salary is calculated by adding his basic salary to all the allowances and bonuses he receives from his employer.
You need to deduct all the taxes and deductions from your gross salary to calculate your net salary.
Gross salary (CTC) refers to the total amount earned by an employee, but it does not indicate how much money he actually takes home. However, take-home salary tells us how much he actually gets after taxes and other deductions are removed from his gross salary.
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