Gross Salary Meaning Simplified: Components, Calculation, and More

Gross Salary Meaning - Paytm for Business

For every individual, a successful career is often correlated with having a high income from salary. A large number of people join the workforce in different industries every day, which has made the total number of salaried individuals in India reach 77.1 million (by Dec 2021). 

The excitement and fervor that comes with becoming a salaried employee are inexplicable for many. However, there is a common surprise that every employee faces on receiving the first salary – the difference between the total CTC (Cost to Company) and the in-hand salary. For many beginners, it is quite difficult to understand the subtle differences between gross salary, take-home pay, and cost to company. 

Here, we will cover gross salary in detail and how it is calculated based on other salary components.

What is gross salary?

Gross salary refers to the total of all the components of an employee’s salary before any voluntary or mandatory deductions (Provident Fund, health insurance, etc.). It includes income from all sources and is not limited to the income received in cash only.

As an employer, you need to provide a breakup of all the components that makes up the gross salary in the monthly payslip given to your employees. Gross salary meaning is often misinterpreted as the salary that an employee takes home (net salary). 

Components of Gross Salary

The following table defines different components of gross salary:

Component Description
Basic SalaryAmount paid to an employee excluding bonuses, perks, and incentives
House Rent Allowance (HRA)Amount paid towards covering the accommodation expenses of an employee (applicable to both salaried and self-employed individuals)
Provident Fund (PF) – Employee ShareAmount deducted from the employee’s salary towards the Employment Provident Fund (12% of the basic salary)
Special Arrears or Salary ArrearsAn additional sum accrued from a salary hike or increment
Special AllowanceAdditional benefits offered by your organization that covers transport, conveyance, outstation visits, etc.
PerquisitesBenefits over and above the basic salary (taxable or non-taxable depending on their nature

Components that are excluded from gross salary

  • Travel leave concession
  • Gratuity
  • Reimbursement of medical expenses
  • Free meals
  • Leave encashment

How to calculate gross salary

As stated above, gross salary includes basic salary and different allowances before any deduction of taxes, PF, or TDS. You can use the simple gross salary formula to learn how to calculate gross salary:

Gross Salary = Basic Salary + HRA + All Other Allowances

Difference between gross salary and basic salary

There are a few differences between gross salary and basic salary that are mainly based on deductions or special allowances.

Gross SalaryBasic Salary
It refers to the salary paid to an employee (either monthly or annually) without any tax deductions.It is the salary component paid to employees before adding any benefits in the form of perquisites or allowances.
It includes bonuses, allowances, overtime pay, and other perks.It also covers the core amount received by employees and forms the basis for calculating HRA and PF deductions.

Difference between gross salary and net salary

Use the following table to understand how to calculate gross salary from net salary:

Gross Salary Net Salary
Total amount payable to the employee after adding different benefits and allowances (but before deducting taxes)Amount that an employee takes home every month
It includes benefits like HRA, medical insurance, etc.It is obtained by subtracting all the deductions from the gross salary.

Example of gross salary and net salary

Mr. Bedi works in a digital marketing firm and has an annual gross salary of Rs. 6,20,000. After all the deductions, his net salary turns out to be Rs. 5,93,000. The following table illustrates all the deductions that clarify the difference between his net salary and gross salary:

Basic salary componentRs. 3,00,000
HRARs. 1,20,000
Leave and travel allowanceRs. 60,000
Special allowanceRs. 1,40,000
Total= Annual gross salary
PFRs. 21,600
Professional taxRs. 2,400
Insurance costRs. 3,000
Total DeductionsRs. 27,000
Net Salary Rs. 6,40,000 – Rs. 27,000 = Rs. 5,93,000


What is CTC?

CTC refers to the cost incurred by a company to hire an employee.

How is gross salary calculated?

It is calculated by adding the basic salary of an employee to the allowances prior to making any deductions.

Is monthly income a gross salary or net salary?

Net monthly income is the one left after the taxes and other deductions. But the amount that an employee receives every month before covering these deductions is the gross salary.

Is PF based on gross salary?

In most cases, the PF contribution is calculated based on the basic salary component. 


Read Our Knowledge Base

You May Also Like
A Complete Guide to MSME Registration in India
Read More

A Complete Guide to MSME Registration in India

MSME registration provides several benefits to the companies in terms of taxation, credit facilities to scale the business up. Let us dig deeper to find out more about MSME registration in India.