Human Capital

Gross Salary is the agreed/committed compensation your Organisation agrees to pay on a monthly(periodic) basis against your services for that period.

Net Salary is gross salary less the deductions which are made on account of statutory compliances(like PF, ESI, Income Tax, Professional Tax) and other dues (Like Loans and Advances taken) which you owe to the Company and Legal dues if any. It is something you get in hand and commonly refer to as Take Home Pay.

Your Income Tax is based on the Gross Pay.

While CTC or Cost to Company is equal to Gross pay + Benefits, Perks and Prequisites i.e., the total Cost a Company incurs in employing the person
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Salary consist of two parts 1) Payments 2) Deductions:

Payment is refered to that part on which Company makes pays cash as per commitment and is commonly refered to as Gross Pay. It may be consolidated or divided into components under whose head a Company makes payment. In the latter case Basic is usually the compulsory component while the rest depends on the Company. HRA is another such component which is usally present.

For example some Company can give DA, while others do not.

In addition to the above Loan and Advances, Awards and Settlements & Compensations are also present if applicable.

The next section is Deductions:

Under this head all statutory deductions, Recovery of Loan and Advances, Taxes, Awards and Settlements are present if applicable.

The statutory Deduction includes Provident Fund (PF) and Employee State Insurance Act; Taxes usually include Income Tax and Professional Taxes.

Net Pay= Gross Pay - Total Deductions

For details of PF and ESI please refer to the relevant acts or can search this site for further details.

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PF : To be deducted from all - 12% of Basic salary + DA (if being paid) and VDA (if being paid). The employer too needs to contribute equivalent amount.

ESI : To be deducted at the rate of 1.75% from employees drawing salary upto Rs.7500/- gross per month, all allowances computed together. You need to ensure whether your organization’s location is exempted from ESI Deduction.
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