Difference between Take-Home Salary, Net, Gross Salary & CTC (2024)

FAQs

Difference between Take-Home Salary, Net, Gross Salary & CTC? ›

So, CTC is the total expense of your employer for sustaining your services. The amount varies among companies, based on the number of benefits. Moreover, your take-home salary depends on the CTC. On the other hand, the gross salary is the amount that remains after subtracting gratuity and EPF from the CTC.

Gross pay is what employees earn before taxes, benefits and other payroll deductions are withheld from their wages. The amount remaining after all withholdings are accounted for is net pay or take-home pay.

Essentially, net income is your gross income minus taxes and other paycheck deductions. It's what you take home on payday. To calculate it, begin with your gross income or the amount you earn from all taxable wages, tips and any income you make from investments, like interest and dividends.

Gross pay is the total amount of money an employee receives before taxes and deductions are taken out. For example, when an employer pays you an annual salary of $40,000 per year, this means you have earned $40,000 in gross pay. Your gross pay will often appear as the highest number you see on your pay statement.

Both gross and net income are important but show a company's profitability at different stages. Although net income is considered the gold standard for profitability, some investors use other measures, such as earnings before interest and taxes (EBIT).

For the year you are filing, earned income includes all income from employment, but only if it is includable in gross income. Examples of earned income are: wages; salaries; tips; and other taxable employee compensation. Earned income also includes net earnings from self-employment.

Net salary is the amount you receive after deductions been taken out. Gross pay is the amount you receive before taxes and deductions. To calculate your net salary, estimate your net earnings and then subtract that number from your gross income minus any additional business expenses.

Taxable income starts with gross income, then certain allowable deductions are subtracted to arrive at the amount of income you're actually taxed on. Tax brackets and marginal tax rates are based on taxable income, not gross income.

Gross sale is the value of all of a business's sales transactions over a specified period of time without accounting for any deductions. Meanwhile, net sales are a company's gross sales minus three kinds of deductions: allowances, discounts, and returns.

The Bottom Line

Gross pay is 100% of an employee's earnings in a given pay period. It is higher than net pay, which is the employee's take-home pay after tax and benefit deductions. Understanding the difference between these two terms helps both employers and employees manage their finances.

Is net pay more important than gross pay? ›

Fike also notes that while net pay is much “less flashy” than gross pay, it is a very important number for an employee to know. Net pay is the amount employees should use for their personal budgeting, not their gross pay.

Why would this be? First, your taxes are based on your gross wages, not your tax home pay. Secondly, some employee benefits are taxable, as are bonuses, cashed in vacation time, etc.

Gross income is the total amount of money you earn before any deductions are made. Net income is your take-home pay. It's what is left over after any taxes and other elective deductions are subtracted from your paycheck, such as retirement plan contributions, health and dental premiums, and other benefits.

The terms gross income and net income can be easily confused. Per definition, gross income is the total amount you earn, and net income is actual business profit after expenses and allowable deductions are taken out.

To calculate net income, take the gross income — the total amount of money earned — then subtract expenses, such as taxes and interest payments. For the individual, net income is the money you actually get from your paycheck each month rather than the gross amount you get paid before payroll deductions.

Taxable income starts with gross income, then certain allowable deductions are subtracted to arrive at the amount of income you're actually taxed on. Tax brackets and marginal tax rates are based on taxable income, not gross income.