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What is Net Salary Formula and How to Calculate Net Salary?

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January 26, 2023


What’s Inside

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. 

What is Net Salary?

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. 

Difference Between Gross Salary and Net Salary

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. 

Gross salary

Net salary

It includes various benefits and allowances like the HRA, conveyance allowance, medical allowance and more.

It does not include non-monetary allowances.

It is the highest amount of salary that you earn. 

It is what you actually take home, and is typically less than the gross salary.

It is the difference between the CTC and the sum of the gratuity and the EPF contribution. 

It is the difference between the gross salary and all the deductions from there. 

Formula To Calculate Net Salary

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.

Net Salary = Gross Salary – Professional Tax – Provident Fund – Income Tax

An Illustrative Example To Calculate Net Salary

Let’s take a look at an example to understand how to calculate net salary better. Consider the following parameters for a salaried employee. 



Basic salary


House Rent Allowance (HRA)


Leave Travel Allowance (LTA)


Gross salary (Basic salary + HRA + LTA)


Deduction for EPF contribution


Professional tax


Total deductions (EPF + professional tax)


The net salary will then be the difference between the gross salary and total deductions, which is ₹2,46,400.

Key Things to Know

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.

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Frequently Asked Questions

1. What is net salary and gross salary?

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. 

2. Is net salary the same as in-hand 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.

3. What is an example of a net income?

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.

4. Does net monthly salary mean CTC?

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.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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