Net salary, also known as ‘Take home salary’ is the difference of gross salary and deductions from gross salary. Put it simple, some amount of money is deducted every month from the salary of employees as a part of retirement benefits, taxes and statutory provisions. Salary remained after these deductions is known as net salary.
Net Salary = Gross Salary – Deductions
Gross salary is sum total of all the pay heads, which are parts of an employee’s salary structure. It includes both fixed pay heads as well as variable pay heads.
Fixed pay heads: These are the pay components which do not vary on monthly basis. Fixed pay heads also known as master salary components are supposed to be remain constant over a period of time.
Eg: Basic, HRA, DA, Conveyance etc.
Variable pay heads: These pay heads keep changing over a period of time. Usually variable pay heads are linked to the performance of an employee and changes accordingly.
Eg: Incentive, Bonus, Commission etc.
Deduction refers to the amount of money which is deducted from salary of an employee. Generally deductions are done in the form of PF, ESIC, PT and TDS as mentioned below:
Provident Fund: 12% of basic and Dearness allowance (DA).
Employee State Insurance Corporation (ESIC): 1.75% of gross salary.
Professional Tax (PT): Vary state wise.
Tax Deducted at Source (TDS): According to tax slab.