Gross Pay vs Net Pay
Written by Mariyam Sara
4 min read | Updated on December 02, 2025, 15:10 IST
Young adults entering the corporate world often confuse gross pay and net pay, considering them to be the same. But that is not right, gross pay and net pay are components of your overall salary that make up a distinct portion of your salary.
Understanding the difference between gross pay and net pay will help you identify your in-hand salary left for personal expenses so you can plan your finances accordingly.
What Is Gross Pay?
Gross pay, also referred to as Gross Salary, is the amount of salary you receive before any mandatory or voluntary deductions are made from it. These deductions could be professional tax, contribution to employees’ provident fund (EPF), etc.
Components of gross pay vary among different employers, but here are some basic elements included in it.
-
Basic Salary
-
Gratuity
-
House Rent Allowance
-
Travel Allowance
-
Other Allowances
How to Calculate Gross Pay?
Calculating your gross pay is quite simple and is usually provided in your offer letter, provided by the Employer. But understanding how it’s calculated helps to negotiate on your salary and budget your finances. Gross pay calculation is different for salaries employees and hourly employees.
For Salaried Employees
Salaried employees get a fixed amount which makes calculating their gross pay straightforward, all you have to do is add all the allowances to your basic salary. Here’s how Gross Pay is calculated for Salaries Employees:
| Salary Component | Figures (₹) |
|---|---|
| Basic Salary | 30,000 |
| House Rent Allowance | 9,000 |
| Travel Allowance | 1,500 |
| Leave Travel Allowance | 2,000 |
Gross Salary = Basic Salary + All Allowances
Gross Salary = 30,000 + 9,000 + 1,500 + 2,000
Gross Salary = ₹42500
For Hourly Employees
If you get paid on an hourly basis, you can find out your gross pay by multiplying your hourly wage by the total number of hours worked within a period of time, for e.g, a month. Here’s how Gross Pay is calculated for hourly employees:
Gross Salary for Hourly Employees = Number of Hours Worked in a month × Hourly Wage.
Let’s say you work for 180 hours in a month and earn ₹400 per hour, your gross pay can be calculated by multiplying 180 hours into ₹400.
Gross Pay = 180 × 400
Gross Pay = ₹72,000
What Is Net Pay?
Net pay, or Net Salary, is the salary you earn after accounting for all mandatory and voluntary deductions.
Since Net Pay is the amount left after subtracting professional tax, TDS, employer’s contributions to the provident fund (EPF) from the gross pay, it is always lower than Gross Pay.
How to Calculate Net Pay?
The method of finding out the net pay is the same for both salaried and hourly employees. Here’s how Net Pay is calculated:
| Salary Components | Figures (₹) |
|---|---|
| Gross Salary | 42,500 |
| Less: TDS | 550 |
| Less: Professional Tax | 200 |
| Less: EPF | 3,600 |
Net Pay = Gross Salary - TDS - Professional Tax - EPF
Net Pay = 42,500 - 550 - 200 - 3600
Net Pay = ₹38,150
Key Difference Between Gross Pay & Net Pay
The following are the key differences between Gross Pay and Net Pay.
| Factors | Gross Pay | Net Pay |
|---|---|---|
| Definition | Gross Pay is the salary an employee receives before any mandatory or voluntary deductions are made. | Net Pay is the salary received by an employee after subtracting the mandatory and voluntary deductions from Gross Pay. |
| Components | It includes allowances such as House Rent Allowance (HRA), Travel Allowance, etc., provided by the employer. | Components such as Professional Tax, Employer’s contribution towards Provident Fund (EPF), etc., are deducted from Gross Pay. |
| Importance | Helps you negotiate your salary by understanding the different components included in it. | Helps in budgeting your finances effectively and makes informed financial decisions. |
| Formula | Gross Pay = Basic Salary + All Allowances | Net Pay = Gross Pay - TDS - Professional Tax - EPF |
Knowing the difference between Gross Pay and Net Pay is crucial for young professionals so they can better plan for their career, manage their finances effectively and maintain their overall financial health.
About Author
Mariyam Sara
Sub-Editor
holds an MBA in Finance and is a true Finance Fanatic. She writes extensively on all things finance whether it’s stock trading, personal finance, or insurance, chances are she’s covered it. When she’s not writing, she’s busy pursuing NISM certifications, experimenting with new baking recipes.
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Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.