What Is Gross Income And How To Calculate It

Personal Finance

Gross income denotes the total earnings without any deductions or tax adjustments. For salaried individuals, gross income is also known as Cost To Company (CTC). However, the take-home pay or in-hand salary would be different after tax and other deductions.

For instance, Raj’s total income is Rs. 4,00,000, and he has paid Rs. 80,000 as Life Insurance premium. His total gross income will be Rs. 4,00,000, while his net income will be Rs. 3,20,000. 

Here are all the details about gross income and how to calculate it. Read on!

What is Gross Income?

Your gross income would be a total of all taxable receipts for the previous year. This will also consist of profits or losses that you carry forward from the previous year and any income after including other provisions.  

However, your gross income will not consist of deductions under Section 80C and Section 80U.

What are the Categories of Gross Income?    

As per Section 14 of the IT Act, a taxpayer’s gross income can be classified as follows:

• Salary income
• Earnings from house property
• Profits from profession and business
• Other sources of income (usually from gambling and lottery)
• Capital gains

Also Read: Monthly Income Plans: Meaning, Overview And Benefits

How to Calculate Gross Income? 

If you are a salaried individual, your annual salary is your gross income, along with other sources of income like investments. However, if you run a business, the gross income is the revenue which your business earns from offering goods and services – the cost of the goods you sold (not including applicable taxes). Let’s take an example to have a clear understanding.

Your business has received total revenue of Rs. 10 lakh. Here are the costs that your business has incurred: 

• Raw material purchase: Rs. 3 lakh
• Labour charges: Rs. 3 lakh
• Packing charges: Rs. 1.5 lakh

So, the cost of selling goods is Rs (3+3+1.5) lakh or Rs. 7.5 lakh. 

Therefore, gross income would stand at Rs. 2.5 lakh (Rs. 10- 7.5 lakh) 

Difference Between Net Income and Gross Income

As mentioned, gross income is the overall amount that you earn before removing any liabilities. The net income is obtained after removing all your liabilities from the gross income. 

In the case of business, gross income is whatever a person earns, and net income is the business profit after removing all expenses. If you run a business, gross income is the total amount you earn before including the expenses you incur to earn the amount. For net income, you need to remove the expenses from gross income. 

For instance, a company involved with selling pickles have total yearly revenue of Rs. 2 lakh. The cost of goods sold stands at Rs. 1 lakh. Here, Rs. 2 lakh is the gross income whole Rs. 1 lakh is net income. 

Also Read: How To Save Income Tax On Salary?

Final Word

Now that you have a clear idea about gross income, you can easily calculate your income tax and file income tax returns. It will also be essential for chalking out your monthly budget. However, you should note that your gross income is not the same as taxable income.

FAQs on Gross Income

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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.