If your primary source of income is a monthly salary, it’s a good idea to learn how to calculate net salary. This way, you can stay on top of the details regarding your pay scale and negotiate your salary better.
The first step to learning how to calculate net salary, however, is to understand what this term means. So, let’s begin at the basics.
The net salary is the total salary that you receive after accounting for various deductions from your gross income. These deductions include (but are not limited to) the tax deducted at source, professional tax, deductions related to the Public Provident Fund (PPF) and more.
Typically, the net salary is what you take home or receive in hand at the end of (or the beginning of) each month. For this reason, the net salary is also commonly known as the take-home salary or the in-hand salary. It is different from the gross salary, and is almost always less than the gross pay.
The gross salary is the total amount that you earn inclusive of all the allowances and benefits, before any deductions are made. The net salary, however, is the amount that you actually receive in hand.
To better understand the difference between the gross salary and the net salary, check out the table below.
The formula to calculate net salary is fairly simple. It is essentially just a mathematical representation of the definition. Check out the net salary formula below.
Let’s take a look at an example to understand how to calculate net salary better. Consider the following parameters for a salaried employee.
The net salary will then be the difference between the gross salary and total deductions, which is ₹2,46,400.
The net salary is an important metric for salaried folks. Depending on the stage in your career that you are in, the net salary can increase significantly if you know how to negotiate well. Here are some important things you should know about the net salary.
- The net salary is different from the Cost to Company (CTC), and is always lower than the CTC.
- The higher your gross salary, the higher your net salary will also be.
- Negotiating a higher net salary is important because it increases the amount that you have in hand to spend at the beginning of each month.
- The net salary may be the same as the gross salary only in case an employee earns less than the deduction limit set by the government.
Knowing how to calculate net salary is crucial for managing your finances and negotiating your salary. The net salary is what you receive after deductions from your gross income, which is the total amount earned before deductions. By understanding the formula and key factors, such as negotiation and government deduction limits, you can make informed decisions and maximize your financial resources.
Fi, and its licensed partner Federal Bank, provides a salary program with many benefits. You get 2% cashback when you shop using Fi — with UPI or Debit Card. 4x Fi-Coins on all your spends via Fi — all of which you can redeem for vouchers, cool merch, etc. Of course, it provides exclusive deals & gift cards from top brands like Amazon, Swiggy & more. Other perks include no minimum balance, a free VISA Platinum debit card with zero forex charges, priority customer service & more. Did we mention a ₹500 Amazon voucher as a joining bonus yet? All said & done, Fi will help you manage/grow your money with features like Connected Accounts, Analyser, Goal-based saving, SIPs & automatic payments. P.S. Salary users on Fi can now top-up their Health Insurance up to ₹20L!
Gross salary is the salary that you earn before any taxes, benefits and payroll deductions are subtracted from the income. Once these deductions are made, the amount remaining is your net salary.
Yes, your net salary is effectively the amount that is credited to your bank account each month. This is, in other words, your take home salary or your in-hand salary, as it is commonly known.
Net income is the amount of money a business or individual has after deducting all expenses, including salaries, wages, taxes, and costs for goods or raw materials. For individuals, it refers to the money received after taxes, health insurance, and retirement contributions are deducted from their income.
Net salary or take-home salary is the amount you receive after various deductions from your cost to company (CTC), such as income tax, professional tax, Public Provident Fund (PPF), and similar items. Your net salary will be lower than your gross salary.
CTC is the annual cost a business pays an employee, including income and extra benefits such as EPF, gratuity, home allowance, food coupons, medical insurance, and travel expenses. However, CTC is generally never equal to your take-home salary or monthly net salary.
