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The deduction meaning is the amount of money that has been included in the CTC that is being offered to the employees but it is not being included in the amount of money that the employer will get to take home. This amount of money is being deducted from the compensation of the employee for various purposes such as income tax, life insurance premium, health insurance premium, etc. The gross salary of an employee is totally different from the employee’s net salary. The net salary of an employee is also called the take-home salary which is the amount left after certain deductions.
Deductions directly affects an employee’s net salary (In hand pay) by several reductions. Here’s how the relationship works:
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Gross Salary: The total salary before any amount subtraction.
Deductions: Amounts subtracted from the gross salary, which can include:
Taxes: Income tax, social security, and other government-mandated taxes like professional taxes, ESI etc.
Benefits: Employee contributions to health insurance, retirement plans, or pension schemes introduced by government.
Other: Union dues, loan repayments, or garnishments.
Net Salary: The remaining salary after all deductions, which is the amount the employee actually receives from any organization.
The process of removing some part from the total refers to the deduction. For example- Income tax deduction
Tax deduction refers to claims made to reduce your taxable income, arising from various investments and expenses incurred by a taxpayer.
Payroll deductions are the amounts that are deducted or withheld from the paycheck of the employees in the form of taxes or voluntary deduction.