Employees are paid salaries by organizations in exchange for their service for a paid interval period. The amount of basic salary is determined by mutual agreement and comparison to others in similar positions or ranks. Apart from that, as an employee, you can also receive certain perquisites and bonuses depending on your performance or the agreement. The total amount you earn throughout a pay period is your gross salary. However, it is different from your take-home pay which is determined by deducting allowances, provident fund contributions, and tax amounts from your gross salary. So, it’s simple as to how to calculate gross salary amount. This article will focus on the method of how to calculate gross salary and the five dos & don’ts of the procedure.
What does Gross Salary mean?
As an employee, your gross salary is the amount payable to you before any deductions are made. It contains the basic wage as well as supplemental compensation such as overtime, performance bonuses, and special bonuses. It does not, however, include any salary deductions. Gross salary includes basic income, pension, allowances, electricity, water, and fuel expenses, among other things. For information about gross salary, check here.
How to calculate gross salary?
- How to Calculate Gross Salary from Take-Home Pay:
As you have pretty much guessed from the name, take-home pay is the amount you receive as an employee after deductions are made from the gross salary. So, if the deductions are added back in, you can get the gross salary amount from your net salary.
Gross Salary = Net Salary (Take-home pay) + Provident Fund + Professional Tax + Income Tax
- How to Calculate Gross Salary from Basic Salary:
As mentioned earlier, Basic Salary is the seed amount of salary decided by mutual consent. It does not include any deductions or bonus amounts. So, you need to add the bonus amounts to the basic salary to get the gross salary.
Gross Salary = Basic Salary + Allowances
Dos and Don’ts of Gross Salary Calculation
To avoid miscalculations while calculating gross salary, observe a few easy dos and don’ts.
- Add pension if available – If an employee receives a pension from a former employer or the government, it will be added to gross salary.
- Double-check every allowance received by personnel before adding – A good amount of allowances are presented before employees in their pay slab, double-check every one before adding.
- Add special arrear income, if received – Special arrear income is a part of perquisites received by an employee.
- Check the latest Income Tax Slab – Income Tax Slabs are subject to change every financial year. Make sure to check it before adding Income Tax to Net Salary.
- Check the latest Professional Tax Slab – Just Income Tax, Professional Tax Slabs are also subject to change every financial year by the state government. It should be checked before adding while calculating Gross Salary from Net Salary.
- Do not add Provident Fund into Gross Salary when calculating from Basic Salary – Basic Salary is the core amount of salary which already includes Provident Fund contribution amounts. So, don’t add Provident Fund into Gross Salary when calculating from Basic Salary.
- Do not add Income Tax into Gross Salary when calculating from Basic Salary – Just like PF, Income Tax is also a part of Basic Salary.
- Do not add Gratuity into Gross Salary – Gratuity needs to be deducted from CTC or Cost to Company when calculating Gross Salary.
Cost of Company is the annual amount spent by the employer on his employee.
- Do not include Allowances when calculating from Net Salary – Net salary is the amount received by employees as the take-home pay. It already includes allowances and perquisites. So, don’t add Allowances into Gross Salary when calculating from Net Salary.
- Do not include Travel reimbursements in the gross salary – Travel Reimbursements are not included in gross salary.
To sum it up,
|Add pension if an employee receives it from a former employer||Do not add Provident Fund into Gross Salary when calculating from Basic Salary|
|Double-check every allowance received by personnel before adding||Do not add Income Tax into Gross Salary when calculating from Basic Salary|
|Add special arrear payment, if received||Do not add Gratuity into Gross Salary|
|Check latest Income Tax Slab||Do not include Allowances when calculating from Net Salary|
|Check latest Professional Tax Slab||Do not include Travel reimbursements in the gross salary|
- What isn’t covered by the Gross Salary?
- Free snacks, drinks provided by the employer during working hours as well as gratuity, and travel reimbursement are some of the few items that are not included in the gross salary.
- How to calculate Gross Salary from CTC?
- Gross Salary = CTC – (Employer’s Contribution to Provident Fund + Gratuity)