If your primary source of income is a monthly salary, it’s a good idea to learn how to calculate your net salary. This way, you can stay on top of the details regarding your pay scale and negotiate your salary better.
The first step to learning how to calculate your net salary, however, is to understand what this term means. So, let’s begin at the basics.
The net salary is the total salary that you receive after accounting for various deductions from your gross income. These deductions include (but are not limited to) the tax deducted at source, professional tax, deductions related to the Public Provident Fund (PPF) and more.
Typically, the net salary is what you take home or receive in hand at the end of (or the beginning of) each month. For this reason, the net salary is also commonly known as the take-home salary or the in-hand salary. It is different from the gross salary, and is almost always less than the gross pay.
The gross salary is the total amount that you earn inclusive of all the allowances and benefits, before any deductions are made. The net salary, however, is the amount that you actually receive in hand.
To better understand the difference between the gross salary and the net salary, check out the table below.
The formula for calculating the net salary is fairly simple. It is essentially just a mathematical representation of the definition. Check out the net salary formula below.
Net Salary = Gross Salary – Professional Tax – Provident Fund – Income Tax
Let’s take a look at an example to understand how to calculate net salary better. Consider the following parameters for a salaried employee.
The net salary will then be the difference between the gross salary and total deductions, which is ₹2,46,400.
The net salary is an important metric for salaried folks. Depending on the stage in your career that you are in, the net salary can increase significantly if you know how to negotiate well. Here are some important things you should know about the net salary.
The net salary is different from the Cost to Company (CTC), and is always lower than the CTC.
The higher your gross salary, the higher your net salary will also be.
Negotiating a higher net salary is important because it increases the amount that you have in hand to spend at the beginning of each month.
The net salary may be the same as the gross salary only in case an employee earns less than the deduction limit set by the government.
You can compute your net monthly salary and plan your monthly expenses accordingly. Knowing your net salary also makes it easier for you to negotiate your pay when you are up for a promotion at work or want to switch jobs. Fi Money, and its RBI-licensed partner Federal Bank, provide a salary account with many benefits. For starters, you get 10% of your salary as Fi-Coins — every month. Plus 5,000 Fi-Coins as a joining bonus. You can redeem these Fi-Coins on an exclusive catalogue of rewards.
Gross salary is the salary that you earn before any taxes, benefits and payroll deductions are subtracted from the income. Once these deductions are made, the amount remaining is your net salary.
Yes, your net salary is effectively the amount that is credited to your bank account each month. This is, in other words, your take home salary or your in-hand salary, as it is commonly known.