Gross up

Meaning & Definition 

Gross up is an employee payment strategy in which the employer pays the employee a higher salary to account for taxes so that the employee gets a certain net income amount.

Benefits of the Gross Up Method

• Ensures that employees get their salaries after the net amount of taxes.
• Applicable to payments such as bonuses and relocation allowances.
• Increases job satisfaction among international employees.
• Used to develop a better compensation plan.

Legal & Regulatory Considerations

• Income Tax Act, 1961, rules for taxation in the case of a grossed-up payment.
• Employer-paid tax, referred to as a benefit, should be a part of the taxable salary.
• Needs an accurate TDS calculation and reporting.