Gross vs Net

Gross vs Net: There are many differences between gross and net. A list of difference between gross and net are given below:

Gross vs Net

The concept of gross and net have different meaning in different scenario. It depends on whether you are discussing a business or a wage earner.

Gross specifies the whole of something while the net is the part of gross after some sorts of deduction.

For a business, gross income is equal to gross margin.

Gross Margin = Total Sales - Cost of Goods

So, the gross income is the amount that a company earns from the sale of goods or services, before the deduction of taxes, selling, administrative and other expenses. On the other hand Net income is the amount of earning that is got after the deduction of all the expenses from sales.

Let's take an example to understand it well.

Suppose, you have a sports goods manufacturing company and has sales of 10 lacs. The cost of the sales goods is 5 lacs and the total selling expenses are 2.5 lacs, So the gross profit is 5 lacs and net profit is 2.5 lacs.

Gross profit (5 lacs) = Total sales (10 lacs) - Cost of the sales goods (5 lacs)
Net profit = Total sales (10 lacs) - [Cost of the sales goods (5 lacs)+Total selling expenses (2.5 lacs)]

For a wage earner:

If a person earns wages of Rs.10000 and Rs. 2000 is deducted from his salary as PF and some other charges for providing facility etc. So, his gross salary is 10000 rupees and his net salary is 8000 rupees after deduction.

Note: For a salaried person, the income tax is calculated on the basis of his gross salary While, A self employed or a business owner pays taxes on their net income. (As per Income-Tax Act of 1961)