Accountancy Part CUse of Spreadsheet in Business Applications

How is the Net Salary (NS) of an employee determined?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → NS = TE - TD

In a payroll, the Net Salary (NS) is the amount the employee actually takes home. First all the earnings are added up (Basic Pay Earned, DA, HRA, TA and so on) to get Total Earnings (TE). Then everything that is cut from the salary, such as Provident Fund, TDS and loan instalments, is added up as Total Deductions (TD). Net Salary is what is left: TE minus TD.

Why the other options are incorrect

Option (1) NS = BPE + PF + TDS — Incorrect. PF and TDS are deductions; adding them to basic pay makes the salary bigger instead of smaller.
Option (3) NS = TE + TD — Incorrect. Deductions are taken away from the earnings, not added to them.
Option (4) NS = BPE - Allowances — Incorrect. Allowances such as DA and HRA are earnings that are added to basic pay, not deducted from it.

NCERT (2026-27 edition):
Elements Used in Payroll Calculation – “The Net Salary (NS) is the amount payable to an employee. It is obtained by deducting Total Deductions (TD) from Total Earnings (TE) as given below : Net Salary (NS) = Total Earnings (TE) – Total Deductions (TD)”