What is the difference between gross salary and net salary?

Gross salary is your total earnings before any deductions. It includes basic salary, HRA, and all allowances. Net salary (in-hand salary) is the amount credited to your bank account after deducting employee PF, professional tax, and income tax from gross salary.

How to calculate in-hand salary from gross salary?

In-Hand Salary = Gross Salary - Employee PF - Professional Tax - Income Tax. First calculate your employee PF (12% of basic salary), then subtract professional tax (varies by state, typically Rs 2,400/year), and finally subtract estimated income tax based on your tax regime.

What is basic salary and what percentage of gross salary is it?

Basic salary is the core fixed component of your salary, typically 40-50% of gross salary. Under the new Wage Code, basic salary must be at least 50% of total remuneration. It directly affects your PF contribution, HRA, and gratuity calculations.

What deductions are taken from gross salary?

Common deductions from gross salary include: Employee Provident Fund (EPF) at 12% of basic salary, Professional Tax (Rs 200/month in most states), and Income Tax (based on tax slabs and regime chosen). Some employees may also have ESI deduction if their salary is below Rs 21,000/month.

Is HRA part of gross salary?

Yes, HRA (House Rent Allowance) is a component of gross salary. It is typically 40-50% of basic salary. HRA is partially tax-exempt under the old tax regime if you live in rented accommodation and can provide rent receipts.

What is professional tax and how much is it?

Professional tax is a state-level tax deducted from your salary. The maximum amount is Rs 2,500 per year. Most states charge Rs 200/month (Rs 2,400/year). Some states like Rajasthan, Haryana, and Uttar Pradesh do not levy professional tax.

Which tax regime is better for salaried employees?

The new tax regime (FY 2025-26) is better for most salaried employees, especially if taxable income is under Rs 12 lakhs (Section 87A rebate makes it tax-free). The old regime may be better if you have significant deductions under Section 80C, HRA exemption, home loan interest, etc.

How is EPF calculated on salary?

Employee PF contribution is 12% of basic salary. If your basic salary exceeds Rs 15,000/month, EPF can be either 12% of actual basic or capped at Rs 1,800/month (12% of Rs 15,000). The employer also contributes 12% of basic, but this is not deducted from your salary.

What is special allowance in salary?

Special allowance is the balancing component in your salary structure. It is the amount remaining after allocating basic salary, HRA, and other fixed allowances from gross salary. Special allowance is fully taxable and does not have any tax exemption.

How much salary is tax-free in India?

Under the new tax regime (FY 2025-26), income up to Rs 12 lakhs is effectively tax-free due to the Section 87A rebate and Rs 75,000 standard deduction. Under the old regime, income up to Rs 5 lakhs is tax-free after the standard deduction of Rs 50,000.

Salary Calculator India | Free Gross to Net Salary Calculator

What is Gross Salary?

Gross salary is the total amount an employee earns before any deductions are applied. It includes your basic salary, House Rent Allowance (HRA), special allowance, and any other fixed allowances your employer provides. Gross salary does not include employer contributions like employer PF or gratuity.

Your gross salary is always higher than your net (in-hand) salary because deductions like employee PF, professional tax, and income tax are subtracted from it. Understanding your gross salary breakup helps you plan finances and evaluate job offers accurately.

Gross salary includes basic pay, HRA, and all fixed allowances
It does not include employer PF, gratuity, or insurance (those are part of CTC)
Your in-hand salary is typically 75-90% of gross salary depending on your tax slab

How is Net Salary Calculated?

Net salary (also called in-hand salary or take-home pay) is calculated by subtracting all employee deductions from your gross salary. The three main deductions are Employee Provident Fund (EPF), professional tax, and income tax.

Net Salary = Gross Salary - Employee PF - Professional Tax - Income Tax

Your gross salary itself is made up of multiple components. The basic salary forms the foundation, and HRA and special allowance make up the rest. Each component has different tax implications, which is why the salary structure matters.

Basic Salary: 40-50% of gross salary (core fixed component)

HRA: 50% of basic (metro) or 40% of basic (non-metro)

Special Allowance: Remaining amount after basic and HRA

(-) Employee PF: 12% of basic salary

(-) Professional Tax: ₹2,400/year (most states)

(-) Income Tax: Based on tax regime and slab rates

Salary Calculation with Example

Let's calculate the net in-hand salary for someone with a gross salary of ₹8,00,000 per annum, living in a metro city, under the new tax regime.

Annual Gross Salary: ₹8,00,000

Basic Salary (50%): ₹4,00,000

HRA (50% of Basic): ₹2,00,000

Special Allowance: ₹2,00,000

(-) Employee PF (12% of Basic): ₹48,000

(-) Professional Tax: ₹2,400

(-) Income Tax (new regime): ₹0 (Section 87A rebate, taxable income under ₹12L)

Annual In-Hand: ₹7,49,600

Monthly In-Hand: ₹62,467

In this example, the employee takes home approximately ₹62,467 per month, which is about 94% of the gross salary. The Section 87A rebate under the new regime makes the income effectively tax-free at this salary level, resulting in a high take-home ratio.

Why is Salary Breakup Important?

Knowing your salary breakup is essential for financial planning, tax saving, and understanding what you actually earn. Here is why it matters:

Financial planning: Your in-hand salary determines your monthly budget for rent, EMIs, savings, and investments. Gross salary alone does not tell the full picture
Tax optimization: Different salary components have different tax treatments. HRA can be partially exempt under the old regime, while basic salary directly affects your PF contribution
Job offer comparison: Two jobs with the same gross salary can result in different in-hand amounts based on the basic salary percentage and city type
Loan eligibility: Banks and financial institutions use your net salary or gross salary to determine loan eligibility. Understanding your breakup helps you prepare for loan applications

How to Use This Salary Calculator

This free salary calculator converts your annual gross salary into a detailed net salary breakup. Follow these steps:

Step 1: Enter your annual gross salary (the total before deductions, as shown on your pay slip)
Step 2: Select your basic salary percentage: 50% (new Wage Code standard) or 40% (older salary structures)
Step 3: Choose your city type: Metro (Delhi, Mumbai, Kolkata, Chennai) or Non-Metro. This affects your HRA component
Step 4: Select your EPF contribution method: full 12% of basic or capped at ₹1,800/month
Step 5: Choose your tax regime (New or Old) and click "Calculate Net Salary" to see your complete breakup

The results show your monthly in-hand salary along with an annual breakup of all components and deductions. You can download a detailed PDF report for your records.

Gross Salary vs Net Salary vs CTC

These three terms represent different salary figures. Understanding the hierarchy helps you decode your offer letter and pay slip.

CTC (Cost to Company): The total annual cost including employer PF, gratuity, insurance, and all benefits. This is the highest figure and what appears in your offer letter.

Gross Salary: CTC minus employer contributions. This is your total earnings before employee deductions. Typically 82-90% of CTC.

Net Salary (In-Hand): Gross salary minus employee deductions (PF, professional tax, income tax). This is what reaches your bank account. Typically 60-75% of CTC or 75-90% of gross salary.

For example, if your CTC is ₹10,00,000, your gross salary would be approximately ₹9,16,000 (after removing employer PF and gratuity), and your net in-hand could be around ₹7,10,000 to ₹8,50,000 annually depending on your tax slab and regime.

Components of Salary Structure in India

A typical Indian salary structure consists of earnings (added to your pay) and deductions (subtracted from your pay). Here is what each component means:

Basic Salary (40-50% of gross): The fixed core component. It directly determines your PF contribution, HRA, and gratuity. Under the new Wage Code, basic must be at least 50% of gross
House Rent Allowance (HRA): 50% of basic for metro cities, 40% for non-metros. Partially tax-exempt if you pay rent under the old regime
Special Allowance: The balancing amount after basic and HRA. This is fully taxable with no exemptions
Employee PF (12% of basic): Your contribution to the Provident Fund, deducted from salary. This builds your retirement corpus and is tax-deductible under Section 80C (old regime)
Professional Tax: A state-level tax capped at ₹2,500/year. Most states charge ₹200/month. Not applicable in states like Rajasthan, Haryana, and UP
Income Tax: Based on your taxable income and chosen regime. The new regime offers simpler slabs with a ₹75,000 standard deduction. The old regime allows more exemptions

Managing salary structures for your team can be complex. Petpooja Payroll automates salary breakup, tax computation, PF/ESI compliance, and payslip generation for businesses of all sizes.

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