What Is The Difference Between Gross Income And Net Income?

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Before you handle finances, one has to know the basic difference between gross income and net income which will be helpful while filing your taxes.

These both matter for a salaried as well as a business person.

Gross Income :

Gross Income is the complete amount what a person earns, without any deductions. Say for example, Hari make Rs 50,000 per month, this is his gross income.

What Is The Difference Between Gross Income And Net Income?

Net Income :

Net Income is the amount left after tax and other deductions. Net Income will always be less than the gross income.

Tax implications :

Everyone knows that for salaried persons tax is deducted by employer before paying the amount.
Consider a person Hari, who falls in the 20% tax bracket.

Say Hari earns Rs 50,000 per month,
Tax implied is 20% i,e 0.20
Rs 50000*0.20=10000
So, Rs 50,000- Rs 10000
=Rs 40,000

Hari's Net income is Rs 40,000/-

If Hari is self employed and net income for his business will be after deducting expenses, overheads, taxes and interest payments from gross income.

As per Indian taxation law, a salaried persons pays tax on the gross income as per Income-Tax Act of 1961. Self-employed and businesses persons pay tax on their net income as per Income-Tax Act of 1961.

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Read more about: income tax, net income
Story first published: Wednesday, November 28, 2012, 10:40 [IST]
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