What is Gross Salary?

Case Breakdown: Movie Superman:

The scene that you just saw shows how Clark Kent (played by Christopher Reeve) is asking Mr. White, his boss for half of his salary to reach a specific address on a weekly basis. Upon hearing this, Lois Lane (played by Margot Kidder) jokingly says, it seems he spends half his salary on his mother. Lois is quite surprised when she realizes that she is correct.

In this blog, Learning Perspectives would explore the meaning of Gross Salary.

What is Gross Salary?

Salary is a fixed amount that is received by an employee each month for a full-time job. Gross salary is paid before taxes and deductions. Gross salary is generally mentioned in the offer letter of the company. It is the CTC or cost to the company. The in-hand amount differs from the gross salary because of taxes and deductions. Gross salary has many components such as:

1. Basic Salary
2. House Rent Allowance (HRA)
3. Leave Travel Allowance
4. Conveyance Allowance
5. Perquisites

Basic Salary:

It is generally around 40% of the total gross salary. Annual basic salary = Monthly basic pay*12. For example, Ram earns a gross salary of Rs. 40,000 per month. In this case, the basic salary would most likely be 40/100*40,000= Rs. 16,000 per month. Then, annual basic salary= 16,000*12= Rs. 1,92,000.

House Rent Allowance:

House rent allowance or HRA is given to the employee by the employer. This is an allowance for accommodation related to expenses incurred on the rent of accommodation. If an employee does not stay in a rented apartment then this allowance is fully taxable. It can be claimed as a deduction if one is staying in a rented flat. HRA deduction is calculated as follows:

Least of the following amounts:

• Actual amount received
• 50% of  [basic+Dearness Allowance] if one is staying in the metro, 40% for other states.
• Actual rent paid-(10% of basic+DA)

Leave Travel Allowance :

LTA or leave travel allowance is an allowance given to employees for traveling across India. travel expenses can be claimed for taxation purposes. One cannot claim this if an employee takes an international trip. LTA cannot be claimed in every financial year. LTA can be claimed when an employee takes leave and travels domestically. 2 travel journeys can be claimed in four block years. Block years are laid down by the government.

Conveyance Allowance:

This is also called the transport allowance. It is given for the distance traveled between your place of residence and the place of work. This is generally given to employees when an employer does not provide its own transport for employees. The exemption limit is Rs. 1,600 per month.

Perquisites:

These are given to employees in addition to allowances and salary. These perquisites are given according to the level achieved by the employee. These can be monetary or non-monetary in nature.