Business

Difference between gross income and net income

Main difference

In our daily lives, we often hear the terms gross and net, as these terms have a diverse scope and are not limited to just the student of economics. We see the use of these terms such as gross or net profit, gross or net salary, gross or net weight, gross or net income, etc. Here we will differentiate between gross and net income. People often use these terms interchangeably as they are closely associated with one another. But actually, both terms have quite different features and characteristics. Gross income is the income of the business or individual not excluding expenses, taxes, or any other adjustments. On the other hand, net income is the income of the business or individual after taxes and other deductions are made. of gross income. When calculating earnings, Gross Income is one of the starting values ​​we get. The net profit depends even on the gross profit since the deductions of expenses and taxes are made in it to know the net profit.

Comparison chart

Gross income Net income
Definition Gross income is the income of the business or individual not excluding expenses, taxes, or any other adjustments. Net income is the income of the business or individual after taxes and other deductions are made from gross income.
Dependence The net income depends directly on the gross income. Gross income does not depend on net income.
Quantity Plus comparatively less
Example A person receives the €1,000 salary check, after tax deductions, he receives €800, in this case, €1,000 is the person’s gross income. When we talk about the net profit of the film, it is the profit that the film has made after deducting all expenses and taxes.

What is gross income?

Gross income is one of the most fundamental values ​​when we evaluate the performance of the company and the income potential that is obtained from it. The term gross income can be used for both businesses and individuals. It is also called gross profit or gross margin. For an employee, whether he works for pay or is salaried, gross income is income, from which no tax deductions are made. For example, a person receives a €1,000 salary check, after tax deductions, he receives €800, in this case, €1,000 is the gross income of the person and €700 is the net income. For a company, gross income is the profit without the deduction of the other expenses during the production process.

What is net income?

Net income is the value of income that we get from the gross value of gross income. In other words, we can say that the net income depends directly on the gross income. After deductions, adjustments to gross income, we get net income. Net income is a complex value, indicating the profit incurred by an individual or company. By obtaining the value of net income, we obtained the difference between total income and all expenses incurred during the period; the value we get is the operating profit. In addition, the deduction of taxes or any other adjustment, gives us the value of net income. Net income represents the profit realized by the company or an individual. It often denotes the cash available on hand, after deductions and adjustments. Deductions may vary as tax rates vary. For example,

Gross income vs. net income

  • Gross income is the income of the business or individual not excluding expenses, taxes, or any other adjustments. On the other hand, net income is the income of the business or individual after taxes and other deductions are made from the gross income.
  • Net income is directly dependent on gross income, while gross income is not dependent on net income.
  • The net profit depends even on the gross profit since the deductions of expenses and taxes are made in it to know the net profit.
  • Gross income is always greater than net income.

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