Written by : Raman Sharma
Reviewed by : Jasmeet Bedi
Jasmeet Bedi
2020-01-09
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8 minutes read
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Taxation calculation and investment in tax-saving schemes is one of the important annual exercises if you are earning money. In this country, you may at times feel overwhelmed with the many tax jargons and numerous deductions. For example, the gross total income (or gross income) and total income, which literally means the same thing. However, legal meanings may differ.
Table Of Content:
Meaning of Gross Total Income & Total Income
Gross Total Income
Section 80B(5) of the Income Tax Act 1961 defines Gross Total Income as income received or receivable by you in the previous year adjusted for clubbing and carry-forward amounts from previous years
Deduct the non-taxable parts of your income from this amount to estimate ‘Gross Total Income’
Note: Investments and expenses under section 80C to 80U are deducted from this amount.
In simple terms, gross total income is the aggregate of all your taxable receipts from the previous year. It will also include profit or loss carried forward from past years and any income after clubbing provisions. But will not include any deductions from section 80C to 80U.
Gross Total Income Example
You can understand what is total gross income better with its examples. It includes all of a person's earnings from all sources, such as dividends, interest, wages, and rental income.
Total Income
Total Income is defined under Section 2(45) with the scope defined by Section 5 of the Income Tax Act, 1961
If you are an Indian resident in the previous year, any income received, accrued or deemed to be received by you will be accounted for
If you are not ordinarily resident in the previous year, incomes arising out of India will be included only if they are from a business controlled or performed from India
In the case of non-residents (NRI), only incomes arising or accruing in India will be counted
Total Income is arrived by deducting all eligible deductions from “Gross Total Income”
Your tax liability will be estimated on the Total Income. In simple terms, you pay tax on your Total Income.
Total Income Example
To better understand total income, its examples include all forms of income, without any deductions, including wages from all sources, capital gains, profits from a business or profession, real estate, and other sources.
See the example below to understand how and where Gross Total Income and Total Income will reflect on your ITR:
See the example below to understand how and where Gross Total Income and Total Income will reflect on your ITR:
| Sources of Income | Income (Rs) | Exempt (Rs) | Cause of Exemption | Taxable (Rs) |
|---|---|---|---|---|
| Salary / Pension Income | 10,00,000 | 65,000 | Allowances & Perquisites | 9,35,000 |
| House Property Income$ | 4,00,000 | 3,21,600 | Home Loan Interest, property tax, and standard deduction | 78,880 |
| Business & Profession | 3,50,000 | 3,50,000 | ||
| Capital Gains | 1,00,000 | 1,00,000 | ||
| Other Sources (interest, lottery, Dividend) | 30,000 | 30,000 | ||
| Agricultural Income | 50,000 | 50,000 | Fully Exempt* | 0 |
| Gifts Received | 0 | |||
| from Direct Blood Relations | 1,00,000 | 1,00,000 | Fully Exempt | 0 |
| from Others (friends & colleagues) | 60,000 | 50,000 | Exempt up to 50,000 in a financial year! | 10,000 |
| Income Share from Partnership Firm | 1,50,000 | 1,50,000 | Not taxable (Tax already paid by the firm) | 0 |
| Income Share from HUF | 80,000 | 80,000 | Not taxable (Tax already paid by the HUF) | 0 |
| Royalty Income on Patents / Published work | 5,00,000 | U/s 80QQB | 5,00,000 | |
| The income of the Previous Year | 28,20,000 |
| Gross Total Income | Exempt (Rs) | Sum of Taxable Incomes | Total Income | Income (Rs) | Gross Total Income (minus deductions) |
|---|---|---|---|---|---|
| 20,03,880 | 15,18,880 | ||||
| Deductions under Chapter VI-A | Add: Agricultural Income | 15,68,880 | |||
| Under Section 80C | 1,50,000 | Life Insurance premium & home loan repayment | Tax on Aggregate Income* | 50,000 | 2,08,164 |
| Under Section 80D | 25,000 | The health insurance premium paid | Deduct Tax on Agricultural Income | (2,500) | |
| Under Section 80QQB | 3,00,000 | Deduction from royalty income | Net tax liability | 2,05,664 | |
| Under other parts of Sec. 80 | 10,000 | Donations & charitable contributions | Health and Education Cess | 8,226 | |
| Tax Payable | 4% | 2,13,890 |
Disclaimer: Table only provides an example of Gross Total Income and Total Income computation. You should refer to the rules for actual exemptions and deductions from various incomes.
Difference Between Gross Total Income and Total Income
Gross Total Income is the total income a person receives in a given fiscal year, before any deductions are made. It encompasses earnings from all sources, including wages, real estate, businesses, capital gains, and other sources.
The total amount of income that is liable to taxes is called total income. It is computed by deducting from the GTI the deductions and exclusions permitted by the Income Tax Act. The amount of income that must be paid in taxes is the resultant figure. Here is a tabular representation of the difference between gross total income and total income
| Parameters | Gross Total Income (GTI) | Total Income (TI) |
|---|---|---|
| Definition | Gross Total Income is the total income received by a person or entity before various deductions, such as taxes and other benefits, are made. It encompasses all forms of revenue, including wages, capital gains, business earnings, and other types of income. | Total Income is the amount of income left over after all allowed deductions under the Income Tax Act have been deducted. It is basically the Gross Total Income less the subtraction. |
| Tax | Instead of using the gross total income, taxes are computed on the entire income. | The total income is used to calculate taxes immediately. |
| Components | All forms of income, including capital gains, wages, house and property, business and profession, and other sources, are included in Gross Total Income. | The total income is calculated by deducting the allowable deductions and exemptions from the gross total income. |
| Purpose | Gross Total Income provides a comprehensive picture of a person's or an organisation's income. | Total Income provides a clear picture of a person's or an organisation's taxable income. |
Clarifications for Treatment of Different Incomes in the Estimate
1. House Property Income ($)
For our calculation, we are assuming that the property is let out with Annual Lettable Value of Rs 4.8 lakhs
For taxable income from the property we need to deduct:
- Municipal taxes (value after this deduction is called Net Annual Value)
- 30% of Net Annual Value
- Interest paid on home loan (up to Rs 2 lakhs)
2. Agricultural Income (*)
- Agricultural income alone does not attract any tax
- If you have other taxable incomes as well, your agricultural Income is added to taxable income to determine your tax slab
- Your tax liability is calculated with agricultural income at first
- Then tax on agricultural income is calculated without accounting for the minimum exemption limit of Rs. 2.5 lakhs in the slabs
- Your final tax liability = Tax on aggregate income (Taxable income + agricultural income) – Tax estimated on Agricultural Income
3. Gifts (!)
- Gifts from non-relatives up to Rs. 50,000 is exempt in one financial year
- Gifts from blood relations are completely exempt
- Gifts received on your marriage from any party is exempt from tax
Summing Up
Despite their similarity, total income and gross total income in income tax are not the same thing. Only the latter are subject to income tax. You can lessen your income tax liability by lowering your overall income and investing in tax-saving plans. To classify diverse sources of income for tax purposes, income can be divided into several headings. Your total income includes all of your earnings from employment, dividends, capital gains, retirement benefits, and other sources of income. The purpose of income categorisation is to ascertain the proper tax treatment for various forms of income, guaranteeing that taxpayers fulfil their legal obligations and pay their fair share of taxes.
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FAQs Related to Gross Total Income
The total income is calculated by adding up all the sources of income. This covers wages, profits from a business or profession, income from real estate, capital gains, and income from other sources.
The deductions available under Section 80 of Chapter VI of the Income Tax Act are:
Section 80CCC - Deduction of contribution to a pension fund
Section 80CCD - Deduction of contribution to pension scheme of central government
Section 80D - Deduction of premium paid for medical insurance
Section 80E - Deduction of interest paid on education loan taken for higher studies
Section 80GG - Tax deductions on house rent paid
Deduction of interest on savings account - Section 80TTA
You cannot deduct any income from your total gross income that isn't deductible by taxes.
Common deductions that reduce Gross Total Income to Total Income include:
Section 80C Deductions, Home Loan Interest, Medical Insurance Premiums, Interest on Education Loans, Donations to Charitable Organizations, Interest on Bank Savings Deposits, NPS contributions, senior Citizen Medical Expenses.
Gross Total Income and Total Income are related but distinct concepts in India's income tax context. While they are often used interchangeably, their meanings and calculations differ.