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. It is the same as 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 income and reduce tax liability. Particular expenses and investments can be taken into account to reduce your total income.
Every Indian 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. For instance, you can invest in ULIPs, or Unit Linked Insurance Plans offered by life insurance providers. You can also opt for term insurance schemes. These are pure-term protection plans that help you to secure your family’s financial future should any unfortunate circumstance lead to your demise. Furthermore, you can also get a tax benefit if you choose to buy a health insurance plans. You not only get coverage for healthcare cost and expense but save tax under Section 80D of the Indian Income Tax Act of 1961. 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 Act.