Gross Income: What It Is and How To Calculate It per Month

By Indeed Editorial Team

Updated 20 September 2022

Published 6 June 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Whether you are a salaried professional employed in a company or run your own business, you must know the exact amount of your gross monthly income. There are many different occasions in which you might need to provide information about it to financial lending institutions and government authorities. As a salaried individual, you might need to show proof of your gross monthly income to get approved for various bank loans and when filing your income tax return. As a business person, you will require it to keep track of all your business expenses, make better financial management choices and for paying taxes on your business.

In this article, we will explore the differences in gross income for individuals and businesses, find out how to calculate it and look at some examples of gross income calculations.

Understanding Gross Income

Gross income, which is also known as gross pay or cost to the company (CTC), is the total salary package that you have earned before there are cuts for taxes and other deductions. The amount is different from the amount of your take-home salary.

In the case of businesses, gross income is the amount you get after subtracting the cost of goods sold from the total sales revenue your business has earned. It is also known as gross profit or gross margin:

Gross monthly income for individuals

If you are a salaried employee or receive a per-day payment, you can calculate your gross income by considering everything you have earned before income tax, professional tax, provident fund, loan deduction and any other deductions. The different components of your gross income from your job earnings can include your basic salary, house rent allowance, leave travel allowance, phone allowance, vehicle allowance, medical allowance, dearness allowance and any other special allowances.

You should also include any other indirect benefits you get, such as work performance incentives and bonuses, overtime payments, gratuity, perquisites, salary arrears, company leased accommodation, employer-paid utility bills and subsidised meal coupons.

You can add up all of these together to get your gross monthly income. If you have any other income sources, such as interest from fixed deposits, income from capital gains or rental income, you must add that as well.

Gross monthly income for businesses

When calculating the gross income for a business, you can consider the money earned from its total business operations. You can count the business revenue you earn from selling your products or services and also what you gain from selling the company's shares. Other components of the gross income for your business can be the amount you get from selling the company's surplus equipment or property, the royalties, interest or fees that you earn on the company's intellectual properties.

In short, the total amount of money you make from all your business-related sources comes under the umbrella of your gross income. You can use the gross monthly income amount to calculate how profitable the business is and to find its gross profit margin.

Related: Gross Salary and Net Salary: Definitions and Examples

The Importance Of Gross Monthly Income

Knowing their exact gross monthly income is crucial for salaried employees, per day earners and self-employed business owners in India. The amount of gross income can assist you in determining your overall financial health and also your eligibility for receiving loans from banks and other financial lending institutions. Here is how gross monthly income helps both individuals and businesses:

How gross monthly income helps individuals

In India, banks and other lending institutes will ask about your gross monthly income when applying for a personal loan, a car loan or a home loan. You must meet their minimum income amount eligibility, amongst the other criteria, before they agree to approve your loan application. By calculating your gross monthly income, you can know beforehand if you will be eligible for the loans and if you can afford to pay the equated monthly instalments.

How gross income helps businesses

As a business owner, you must know your business gross income as it can help you accurately measure how much profit you are making in a given time frame. It can also help you compare the cost of goods sold with your total business sales and take steps to reduce expenses and avoid financial problems arising from fluctuations in the cost of goods sold.

You can use the gross income of your business in many financial calculations, such as determining your gross profit margin and for tax purposes. When taking a business loan, you can use your gross income to find out what your debt-to-income ratio is and calculate the amount of debt you can safely manage on your income at a time. It is handy knowledge to have, especially if you are planning to expand your business.

Related: How to Share Your Salary History

Calculating Gross Monthly Income

There are two different calculation formulae that you can use to calculate your gross monthly income as an individual, depending on whether you receive a monthly salary or earn a per-day payment.

To calculate the gross income per month if you are a salaried individual, you can divide your annual salary by the number of months in a year. For instance:

Gross income per month = Annual salary / 12

To calculate your gross income per month, if you are an individual receiving a per-day payment, you can multiply your daily payment amount by the number of days you work per week and the number of weeks you work per year. You can then divide the amount you get by the months per year. Here is the formula:

Gross income per month = Daily pay x (days per week x weeks per year) / months per year

To determine the gross income of your business, you will need to consider the amount of cost of goods sold and the annual revenue of the business. You must subtract the cost of goods sold amount from the annual business revenue. Here is how:

Gross income = Gross revenue - Cost of goods sold

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Gross Monthly Income Calculation Examples

You can apply the gross income calculation formulas to the real-world individual and business situations that you might face in the following ways:

Here is how to calculate the gross monthly income for salaried individuals

Meenakshi earns Rs. 6,00,000 per month, working as a software developer. She wants to invest in her friend's fashion clothing business, which will require her to put in Rs. 5000 every month. To find out if this is something she can afford, Meenakshi needs to find out what her gross monthly income is. To calculate this, she can use the gross income formula for salary as follows:

Gross income per month = Annual salary/months per year

In Meenakshi's case, this will be:

Gross income per month = Rs. 6,00,000 / 12

Gross income per month = Rs. 50,000

So, Meenakshi's gross monthly income is Rs. 50,000. Out of this, she needs Rs. 25,000 to manage her monthly household expenses and must save Rs.10,000. That leaves Rs. 15,000 and she can easily invest Rs. 5000 out of that in her friend's business.

Here is how to calculate the gross monthly income for workers paid by the day

Harikishan works as an above-the-ground, highly-skilled worker in a bauxite mine and earns Rs. 610 per day, with a variable dearness allowance of Rs. 135. So, his per-day earning is Rs. 745. He has been looking for new rented accommodation and has found a room for which he is being asked to pay Rs. 3,500 per month in rent. He wants to find out if he can afford to pay for this rent. To do that, he can use the gross income formula in the following way:

Gross income per month = Daily pay x (days per week x weeks per year) / months per year

In Harikishan's case, this will be:

Gross income per month = 745 x (5 x 52) /12

Gross income per month = 745 x (260) /12

Gross income per month = 19,3700 / 12

Gross income per month = Rs. 16,141

So, Harikishan's gross monthly income is Rs. 16,141. Out of this, he requires Rs. 10,000 for monthly family expenditures and that leaves Rs. 6,141. That means he can afford to pay the rent for the new room.

Here is how to calculate the gross income for businesses

A small food packaging business has an annual revenue of Rs. 15,00,000. It had to spend Rs. 1,20,000 for purchasing materials, warehouse storage and labour and that is the total cost of goods sold. So this is how the business can calculate its gross income:

Cost of goods sold = Rs. 1,20,000

Gross income = Gross revenue - Cost of goods sold

Gross income = Rs. 15,00,000 - Rs. 1,20,000

Gross income = Rs. 13,80,000

So the gross income of the food packaging business is Rs. 13,80,000.


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