What is the difference between gross and net salary? This is by far the most asked question from the employees of the company, given that it can be puzzling when looked at in a broader view with tax deductions and increments.
If you have no clue about the things that make them different, keep on reading this guide and figure it out yourself.
Gross salary can be defined as the salary an employee earns before the necessary payroll deductions like income tax, PF, and medical insurance. It is the money he/ she earns while working in a company for over one year and is inclusive of basic salary, house rent allowance, conveyance allowance, and much more. This type of salary also includes other types of increments, like bonuses, overtime pay, holiday pay, and so on.
Also known as Take-Home salary, the net salary can be defined as the income you earn after it has been through the process of tax deductions. This type of salary has been through provident fund, income tax, PF, medical insurance, and other necessary deductions. As it is obvious, net salary is usually less than gross salary, and can only be equal when the income tax applied to a salary is 0 (when the salary of an employee is less than government tax limits).
Get to know about Average Salaries in South Africa here.
Common Differences Between a Gross and Net Salary
Understanding the differences between gross and net salary is pretty easy and straightforward. That said, here is a list of some common differences from my side if you have no clue how to compare the two. So, dive right in to know more.
The first difference between the gross and net salary is their meaning. For instance, gross salary is the amount an employee earns over the entire year, without any tax deductions. In contrast, net salary is the amount the employee takes with him/ her home and is inclusive of deductions like income tax, PF, professional tax, and provisional tax.
Similarly, the next difference between the two is their amount. It is pretty obvious from the definition that the gross salary is the maximum amount of salary you have earned over time. Quite the opposite of that, net salary is the net amount you get from the gross salary after deductions.
When it comes to benefits, you get different types of advantages and perks with these two kinds of salaries. Here, if we talk about the gross salary, it is inclusive of benefits like overtime pay, holiday pay, conveyance allowance, rent allowance, and other sort of differentials. On the contrary, net salary is exclusive from all these fringe benefits at the end of the day.
The next difference we will talk about is interdependency. Now, let’s talk about the gross salary; it is typically dependent on the net salary, income taxes, and retails. But if we analyze the amount of net salary, it is not dependent on the tax deductions, considering that it is the money you get to enjoy and take home.
Last but not least, we are going to be talking about the gross salary. First, gross salary is the salary obtained from the cost to the company after it has gone through the essential employee provident and retail funds. However, the net salary is the gross salary after the company deducts income tax from it.
Let’s Recap: How are Gross and Net Salary Compared with Each Other?
Here is a quick summary of how the employees get their gross and net salary while working in a company.
- First, the employer of a company decides the annual compensation from the employee’s salary. This is known as gross salary and is independent of tax deductions.
- After this, the employee salaries go through some income taxes and provisional fund taxes that come to be known as net salary.
- Gross salary is always higher than net salary, until and unless the salary is less than government tax limits.
- Net salary is always dependent on the gross salary.
Gross and net salary are the most important for an employee to understand. That said, I completely understand that they can be the most tricky to understand, especially when seen in consideration of taxes and increments. I hope, after reading this guide, you have a clear idea of the difference between the two.