There are two important terminologies that are necessary to get a basic idea of what is a Gross Salary is, they are Cost to the Company and Employee’s Provident Fund. Cost to Company,  as it is often called is the cost incurred by the company while hiring an employee.

It constitutes a no. of elements e.g.  Provident Fund, Dearness Allowance, House Rent  Allowances, Medical Insurance, etc. These are generally the allowances that are incurred by the company and added to the salary of an employee. 

Employee Provident Fund account as it is called in common parlance is a social security strategy for the benefit or sake of employees. These facilities range from medical assistance, education for children, insurance support, retirement, housing, conveyance reimbursement, etc.  As per the directions of the [EPFO] Employee Provident Fund Organisation, every employee is required to contribute or give at least 12% of the employee’s salary towards their [EPF] Employee Provident Fund account.

The EPF scheme is prescribed by the Labour Ministry. Therefore, with the concepts of EPFand CTC, Gross salary is come out when the [EPF] Employee Provident Fund account and gratuity are subtracted from the CTC. In easy terms, Gross Salary is the amount which is given to the employee, including annual and bonus festive, leave encashments, etc.,  before the deduction tax, whatsoever. 

Note: Gratuity is a token amount that is paid to the employer. offered during the employment tenure. It is also a benefits scheme that matures and is handed over to the employer at the time of his or her retirement. 

What constitutes Gross Salary? 

The components of gross salary are as follows: 

Direct Benefits: 

Direct Benefits include house rent allowance, leave travel allowance, basic salary, telephone and conveyance allowance, mobile phone bill allowance, and all other special allowances if any. 

Indirect Benefits:

Indirect Benefits are those which occur outside routine, i.e., incentives or bonuses, overtime payment, housing provisions by the employer, the bearing of utility bills by the employer, arrears of salary, etc. 

Both direct, and indirect benefits, constitute the gross salary of an employee. Apart from the above two components, there are also other benefits or profits provided by an employer, usually made towards the welfare or sake of the employees of any given organization. These expenses or costs are such in nature that they are not included in the CTC of an employee. For e.g; 

1. Drinks refreshments and food is provided to the employees during office hours. This covers, snacks, and beverages like tea and coffee, etc.
2. Reimbursement of expenses incurred by the employee on traveling due to an official tour or visit expenses or cost incurred against lunch and dinner, etc.

How to calculate net salary and gross salary? What is the difference? 

The difference between net salary and gross salary and their calculation, follow the calculation given below. 

e.g. Therefore, let us suppose that any person works at a Human Rights organization in New Delhi. Her gross salary per annum is Rs 8,50,000 while his net take-home is just Rs 8,11,000. 

Basic salary Rs 4,50,000

House rent allowance Rs 1,70,000

Leave and travel allowance Rs 50,000

Special allowance Rs 1,80,000

Total Rs 8,50,000

Before making any deductions the amounts arrived are known as the Net Salary. From the total amount, find is the Net Salary, the following deductions or reductions are to be made:

Provident fund Rs 2,600

Profession tax Rs 2,400

Insurance premium Rs 10,600

Total Deductions Rs 15,600

the formulas are simple in order to calculate the gross salary. The calculation to be followed is the net salary-less reduction or deductions. Therefore, here the net salary is Rs. 8,50,000/- from which Rs. 39,000/- is to be deducted. The amount find by this formula  (i.e., 8,11,000/- ) is the gross salary 

Net salary per annum Gross salary – deductions 

Rs 8,50,000 Rs 8,50,000 – Rs 39,000 = 8,34,400/-