Gross pay refers to the total amount of money an employee earns before any deductions are made, such as taxes or benefits.
Net pay, on the other hand, is the amount of money an employee takes home after all deductions have been made.
Understanding the difference between gross pay and net pay is important for both employees and employers, as it can impact budgeting and financial planning.
Here’s a gross salary vs. net salary tabular comparison that’ll help make things clearer:
Let’s take an example to see how gross and net salary work. Let’s say, Akansha has a gross salary of ₹1,50,000. While 50% of the gross salary is her base pay, the rest is composed of HRA, conveyance allowances, medical allowance, retirals and other bonuses. However, this figure doesn’t include any salary deductions.
Now when we factor in deductions like TDS, professional tax, and PPF, we get her net salary. Let’s say these deductions add up to a total of ₹24,000. When this sum is deducted from her gross salary, the resulting figure is ₹1,26,000. Although her gross salary is much higher, this will be Anushka’s net or take-home salary.
In conclusion, gross pay and net pay are two important concepts to understand when it comes to compensation and taxation. Gross pay is the total amount of money earned before any deductions or taxes are taken out, while net pay is the amount of money that an individual receives after all deductions and taxes have been taken out. Understanding the difference between these two terms can help individuals budget and plan their finances more effectively. It is also important for employers to understand and accurately calculate gross and net pay for their employees.
Generally, gross pay is more than net pay as it consists of the employee’s salary before any deductions. Since net pay is the payable salary, post-tax and other deductions, it tends to be lower than gross pay. However, when no taxes or deductions are imposed on the employee’s income, the gross and net pay is equal.
Net salary refers to the take-home salary of an employee. It is computed by subtracting TDS, PPF, professional tax and other application deductions from the employee’s outstanding gross pay. In other words, Net Salary = Gross Pay - TDS - PPF - All Applicable Deductions.