Every year, one must file his/her tax returns basis the applicability. The calculation of tax and the investment in any schemes that save tax are crucial annual practices if you are earning an income. In India, it’s easy for you, as a taxpayer, to feel overwhelmed with all the varying jargon that relates to tax and tax filing. Over and above this, there are numerous deductions that are involved, and every taxpayer must know about these to get the maximum savings in paying taxes.
Taxpayers often get confused with such terms as gross total income, total income, etc. What they may not know is that gross total income and total income essentially mean the same things but may have differences in meaning from a legal standpoint.
Although you may have a professional that does your tax filing for you, such as a chartered accountant, it is important for you to know certain fundamental concepts that relate to your income tax returns. After all, in the event you can save on tax, you benefit the most.
What is the Difference Between Gross Total Income & Total Income?
To know the differences between terms relating to income, you should know about the definitions of terms so that you can make distinctions in a simple way. According to the Income Tax Act of 1961, important terms like gross total income and total income are well-defined and can help you understand what this entail before you file your next income tax returns. Your gross total income is income earned before claiming applicable deductions under Income Tax Act 1961. This is an important term as far as income tax goes., Gross Total Income entails the following:
It includes the income that an individual has received in the previous year which is adjusted against clubbing and amounts carried forward from past years.
Non-taxable portions of income must be deducted to arrive at an estimate of gross total income. It is important to note that certain investments and other expenses get deducted from the gross total income.
In plain terms, the gross total income is explained as the aggregate of your total taxable receipts obtained in the past year after claiming set-off against any loss which is carried forward from previous years. This gross total income does not include deductions that fall under Section 80C to 80U of the Income Tax Act of 1961.
The next aspect that matters to your filing of income tax returns is the total income. Under Section 2(45) and under the scope of the definition mentioned in Section 5 of the Income Tax Act of 1961, total income is defined as such:
Any income that has been received, deemed to be received, or accrued in India in the past year is accounted for as total income.
If you have not resided in India in the past year, only income that has received or deemed to be received or arisen or accrued in India will be considered.
Individuals often get confused when terms are used interchangeably. For Instance, you may be wondering if gross total income is the same as total income. The gross total income includes any and all income (from various sources) accrued by an individual, whether it's from house rent or salary. Another crucial point to note, one can be saved from paying more tax, by claiming deduction if you place your income, or part of it, in certain schemes that are tax-saving. Under Section 80C, after you estimate your gross total income, you have an opportunity to lower your total taxable income and reduce tax liability. Particular expenses and investments can be taken into account to reduce your total income.
How and Where Gross Total Income and Total Income Will Reflect On Your ITR?
The Gross Total Income is calculated after adding up the five heads of income. Once all the heads are listed and filled, the aggregate income that you earn would be reflected under Gross Total Income. So, the Gross Total Income is reflected after the heads of income1.
After the Gross Total Income is calculated, you can deduct eligible deductions allowed under Chapter VI A of the Income Tax Act. These include deductions starting from Section 80C and going up to Section 80U and they are available under the old tax regime. Once these deductions are deducted from the Gross Total Income, the Total Income is reflected1. If you are using the new tax regime, deduct the applicable deductions, if any and the total income will be reflected.
How To Calculate Gross Income?
The gross income or Gross Total Income is calculated by adding up the five heads of income. These include the following –
- Income from salary,
- Income from capital gains,
- Income from any profession or business,
- Income from other sources,
- Income from house property, etc.
Your income is segregated and classified under each head and then each head is totalled. Thereafter, the income under all the heads is added together to find the gross income1.
How To Calculate Total Income?
The total income is the income derived after factoring in Section 80 deductions. So, to calculate the total income, first, calculate the gross total income, i.e., the aggregate income that you earned in a financial year from all the five heads of income.
Once you know the gross total income, list down all the Section 80 deductions that you are eligible for. These include deductions under Section 80C, 80D, 80DDB, 80E, 80TTA, 80TTB, 80G, 80U, etc.
After deducting the deductions under Section 80 from the gross total income, the resulting amount that you get would be the total income.
Steps To Calculate Your Total Income
To calculate total income, here are the steps that you should follow –
- Classify your income under the five different heads specified by the Income Tax Act.
- Add up the income under each head.
- You will get the gross total income.
- Now, list down all the eligible investments and expenses which qualify under Chapter VI A of the Income Tax Act. These include the relevant deductions from Section 80C to 80U.
- For the new tax regime, deduct the eligible deductions and exemptions and calculate your total income.
How to effectively reduce your overall Taxable Income and also save on the aggregate tax amount without affecting your total gross income?
You can reduce your total taxable income by claiming the maximum possible deductions and exemptions offered under Chapter VI A of the Income Tax Act. This is available under the old tax regime only. Some of the popular deductions include the following2 –
- Section 80C – invest in the various avenues that qualify for a deduction under Section 80C up to a limit of Rs.1.5 lakhs. Common examples include life insurance premiums, 5-year fixed deposits, PPF, NSC, ELSS schemes, etc.
- Section 80D – invest in a health insurance plan and claim a deduction under this section up to Rs. 1 lakh.
- Section 80E – if you have an education loan, the interest paid on the loan can be claimed as a deduction under this section.
- Section 80TTA – interest earned on the amount in the savings accounts that can be claimed as a deduction up to Rs. 10,000.
- Section 80TTB – interest earned by senior citizens on deposit accounts can be claimed as a deduction up to Rs. 50,000.
Consider taking benefits of these deductions and reduce your total taxable income without affecting your gross income.
Every Individual has to file income tax returns for any income earned in the past year. However, you can save a substantial amount of tax by claiming deduction under Section 80C of Income Tax Act 1961 through several schemes, under old tax regimes. For instance, you may consider investing in ULIPs, or Unit Linked Insurance Plans offered by life insurance providers. You can also opt for term insurance plans. These are pure-term protection plans that help you to secure your family’s financial future should any unfortunate circumstance lead to your demise. Whether you are a self-employed individual or are salaried, you get a tax benefit on the premiums paid as per the provisions stated in the Income Tax Act 1961.
1. What is Gross Income?
Gross income is the total income earned from the five heads of income. In other words, the aggregate income you earn in a financial year is termed gross income.
2. How is Gross Income different from Total Income?
Gross income represents the aggregate income that you earn in a financial year, without factoring in deductions.
Total income, on the other hand, means the gross income minus the deductions available under Chapter VI A of the Income Tax Act which is chargeable to Tax.
3. What can't be deducted from your total gross income?
Incomes which are not eligible for a tax deduction cannot be deducted from your total gross income.