Understand the meaning of basic salary, gross salary and net salary:
What is Basic Salary?
Basic salary is the amount paid to an employee before any extras are added or taken off. Added extras include HRA, DA, Transport Allowance etc. whereas deductions include Provident Fund, Employee State Insurance etc.
In the attached screenshot, basic salary is Rs 15,000.
What is Gross Salary?
Gross salary (also called gross pay) refers to pay components which an employee receives in return of his/ her service. These pay components are categorized as recurring and non – recurring pay components. In other words, whatever an employee receives from employer as part of salary constitutes gross salary.
Gross salary = Basic salary + Recurring pay components + Non – recurring pay components
In the above screenshot, the total of all the pay components (Basic salary, HRA, Conveyance allowance, Medical allowance and VIC) is Rs 25,945 which is gross salary.
What is Net Salary?
Net salary also referred as ‘Take home salary’ is the amount which is left after deductions like PF, EPS, Advance etc.
Net salary = Gross salary – Deductions
In the above screenshot, the difference of gross salary and deductions is Rs 23245 which is net pay.