Take Home Vs Gross

An ad in Rozee.pk says: Junior Software Engineer wanted, salary 80,000 rupees per month. You apply, you get the job, the offer letter says 80,000 rupees per month. On the last working day of the month you check your bank app expecting 80,000 rupees. The number that arrives is 67,500 rupees. You did not get robbed. You met your first salary slip. This lesson is about the gap between gross and take home, and why you must learn to read it before you sign anything.

Gross salary is the headline number. Net salary, also called take home, is what reaches your bank account. The gap is made up of three things in Pakistan. First, income tax deducted at source by your employer under FBR rules. Second, your share of the provident fund, usually 8.33 percent of basic. Third, EOBI, the employee old age benefit contribution, a small fixed amount of 370 rupees a month. Each is recorded as a line item on your salary slip.

Let us walk through the 80,000 rupees offer in slow motion. Annual gross is 960,000 rupees. The first 600,000 is tax free. The next 360,000 is taxed at 5 percent, which is 18,000 rupees a year, or 1,500 a month. Provident fund contribution at 8.33 percent of an assumed basic of 50,000 rupees is 4,165 rupees a month. EOBI is 370 rupees. Add the three deductions: 1,500 plus 4,165 plus 370 equals 6,035 rupees deducted. Wait, that gives 73,965, not 67,500. The difference is usually a second medical or insurance contribution, or a higher tax slab if there are bonuses. The point is not the exact rupee figure. The point is that you can read the slip line by line and explain every deduction. If you cannot, ask HR.

What is basic, what is allowance, why does it matter. Pakistani salary structures split the gross into basic, house rent allowance (HRA), conveyance, medical, and utility. Basic is usually 50 to 60 percent of gross, the rest are allowances. PF is calculated only on basic. Gratuity, when you leave, is calculated only on basic. So a higher basic means higher PF and gratuity, but it also means slightly higher tax in some old structures. New FBR rules mostly tax the full salary, so the structure matters less than it used to. Still, read it.

Why this lesson is the third one in the track. Because most Pakistanis arrive at salary day with no idea what their slip says, accept whatever lands in the account, and never go back to verify. Eight years later they are surprised that the gratuity is smaller than they thought, the PF is in someone else's company, and they are paying tax on income they had not declared. Honest accounting starts on day one. Read the slip every month. Keep them all in a folder.