Gross up

Gross Up – Grossing up in taxation is the process of adjusting a net amount to include taxes, so that after taxes are deducted, the recipient receives the intended net amount. This ensures that tax liabilities are covered, and the final payout or benefit remains unaffected by tax deductions. Grossing up is commonly applied in employee benefits, bonuses, or reimbursements, where the payer wants the recipient to receive a specific net sum. The grossed-up amount is calculated using the applicable tax rate, effectively reversing the tax deduction process.

Example: If an employee is to receive a net bonus of ₹1,00,000 and the tax rate is 20%, the grossed-up bonus would be ₹1,25,000. After applying 20% tax (₹25,000), the employee receives the intended net amount of ₹1,00,000