Gross Total Income in Income Tax: A Taxpayer’s Guide
Taxes are cumbersome for someone who does not know the basics of taxation. The list gets more complicated as more terms are added or changed by the authorities over time. As everyone knows, taxes are based on income. However, the Indian Income Tax Act further classifies and refers to income under a number of heads, including:
Exempt Income
Income Subject to Taxation
Total Earnings
Total Gross Income
This article will give you a thorough explanation of gross total income, or GTI. What use does gross total income serve? Why should you be aware of this? The method of calculation, the distinction between GTI and TI (total income) as defined by the Indian Income Tax Act, and much more.
Table of Contents
What is Gross Total Income?
The Income Tax Act's Section 80B(5) defines gross total income.
It takes into account your income from the prior year, adjusted for clubbing and carryover amounts from prior years.
To estimate your "Gross Total Income," deduct the portions of your income that are not taxable from this total.
This sum is reduced by investments and costs covered by sections 80C through 80U. All of your taxable revenues from the previous year added together is your gross total income, to put it simply. It will also include any revenue remaining after clubbing provisions, as well as any profit or loss carried over from prior years. Nonetheless, it would not take into account any section 80C to 80U deductions.
Components of Gross Total Income
All revenue received before any deductions or exemptions are applied is referred to as gross total income or GTI. The following is a list of the several parts that make up GTI:
Salary income: This covers all of your normal pay as well as any commissions, bonuses, and allowances that your company may give you.
House Property Income: Whether you own and rent out a property is included in this category.
Revenue from a Career or Business: Gains from operating a business or pursuing a career are included in GTI.
Wealth Gains: Gains from the sale of capital assets, such as bonds, equities, and real estate, are accounted for as capital gains and go towards GTI.
Revenue from Additional Sources: This is a broad category that includes a variety of income sources. These include interest earned on savings accounts, investment dividend income, and income from freelance work.
Income from Clubs (if applicable): Certain family members' earnings may occasionally be added to your GTI. This is subject to the particular tax legislation.
Loss set-off (if applicable): You may be eligible to deduct capital losses or business losses from your GTI in some situations.
Calculation of Gross Total Income
Calculating gross revenue is a fairly simple task for employees. Usually, it involves totalling up all revenue from various sources and the employer(s) received throughout a given time frame, such as a year. The following is a step-by-step guide to figuring up employee gross income:
Step 1: Determine Your Residency Status
The wages you are required to include in your taxable income depend on your residency status.
Step 2: Identify Your Source of Income
Sort your income according to the following five income overheads:
Salary: The total amount of money you receive from your employer, plus any benefits and reimbursements (pension income is included in this category).
Real Estate: Rental income
Industry or occupation: Your self-employment or business profit is calculated by deducting your professional or business expenses from your overall revenue.
Profits on capital: Gains from the stock market, the selling of movable assets like shares, jewellery, and houses, as well as gains from the sale of immovable property like land.
Additional sources: Anything not covered by one of the preceding four categories (royalties, lottery winnings, interest income, etc.).
Step 3: Determine the Profit from Each Head
You must be aware of the tax-exempt income categories, such as agricultural income, in order to do this. Those profits are not required to be included in your total income.
Step 4: Group Your Earnings
According to tax legislation, you have to include various forms of income earned by your spouse or minor kid in your gross income.
Step 5: Losses to be Set Off and Carried Forward
Different income sources may be included under some income headings. Under the same heading, you may earn from one source while losing money from another. It is possible to offset earnings from one source against losses from another. Such gains and losses may also be adjusted inter-head under the tax regulations. In addition, you can lower your tax obligation by deducting losses from prior years from your income in the current year.
Step 6: Determine Your Gross Total Income
Your gross income is the total amount determined by calculating the preceding steps. Gross total income is the total income less any tax-saving investments made under Sections 80C to 80U of the Income Tax Act of 1961. Hence, all income must be added up.
Additions to be Made to Gross Total Income
The following must be included in addition to the earnings from each of the five income heads in order to determine your gross total income.
Income must be added in accordance with the Income Tax Act's clubbing regulations.
Modifications for loss carryover and set-off
Unexplained Tax Credit, granted in cash or credit, as per section 68 of the Income Tax Act of 1961. It refers to receiving any quantity of money for which you lack a proper justification explaining where the money came from. The money from these categories is added to your gross total income.
Unexplained Investments include the investments you have made for which you cannot provide a sufficient explanation for the source, or for which you have made inaccurate disclosures. Under section 69 of the Income Tax Act, your assets will be considered unexplained investments in each of these scenarios. Additionally, your Gross Total Income (GTI) will be increased by it.
Assets and other money under Section 69A, assets such as cash, jewellery, etc., for which the assessee does not have a valid explanation will be added to the individual's gross total income.
Section 69B of the Income Tax Act of 1961 provides that income that is not revealed or that is disclosed at a lower level is added to the Gross Total Income. This has to do with all of the assets and income you have either not disclosed at all or disclosed at a lesser level than the actual funds.
Unaccounted for expenses as defined by section 69C. Your expenses will be added to your gross total income and subsequently charged to taxes if you have incurred any and there is no appropriate justification available.
Hundi amount borrowed or paid back. According to section 69D of the income tax, if you have borrowed or paid back any amount on Hundi, it will be added to your gross total income or GI.
Importance of Calculating Gross Total Income
The most important number in calculating taxable income is gross total income, which is obtained by deducting permitted deductions from gross total income. It acts as the foundation for the income reporting process when submitting an income tax return. Chapter VI A of the Income Tax Act provides a number of deductions and exemptions, including deductions for investments such as Public Provident Fund, Provident Fund, and Life Insurance Premiums, among others. The taxable or total income is calculated by deducting these deductions from the gross total income.
Difference Between Gross Total Income and Total Income
At this point, it is important to differentiate Gross Total Income from Total Income. After all allowable GTI deductions, exemptions, and allowances have been claimed, the income is totalled. Since an individual's tax burden is determined by their income, it is also known as "taxable income." The following table highlights the key differences between the two:
Gross Income | Total Income |
Calculated under all five income sources after clubbing and setting off losses | The income amount is used to calculate the tax payable by the assessee |
The entire income earned in a specific financial year before deductions under Chapter VI-A are claimed | Deductions done under Section 80 (80C to 80U) |
Not used to determine income tax obligations of the assessee | Used to calculate the income tax obligation of the assessee |
Tax is not levied on this amount | Income tax is payable on this amount |
Conclusion
Many taxpayers find income tax calculations confusing because of the technical terms involved. On the other hand, in order to avoid penalties, you must pay the correct amount of taxes if your annual earnings are below the taxable income slabs. Nonetheless, determining your gross and total taxable income is the first step in calculating the tax that must be paid. Utilising tax-saving tools and claiming exclusions and deductions to lower your tax liability also aids in tax planning.
FAQ
Q1. How many heads of income are considered to calculate the gross total income?
The gross total income is calculated using five different heads of revenue, which are: income from salaries, income from real estate, business or profession profits and gains, capital gains income, and income from other sources.
Q2. What is the sum of various heads of income called?
The total income determined under each of the five income heads is considered as the gross total income.
Q3. What is total income in income tax?
The amount of money left over after deducting all allowable expenses under the income tax statute is known as the taxpayer's total income. GTI - deductions are subtracted in order to calculate taxes. The gross total income is not used to compute taxes. Nonetheless, GTI serves as the foundation for calculating taxes.
Q4. How do the gross total income and the taxable income differ?
The total revenue determined by adding together the five categories of income is referred to as gross total income. Taxable income is achieved after subtracting different deductions under Chapter VI A from gross total income.
Q5. What is gross total income formula?
Gross total income is the sum of salary, house property income, business/professional income, capital gains, income from other sources, and clubbed income, minus the losses offset.
Q6. What is a deduction from gross total income?
An amount deducted from the total income or revenue is classified as a deduction from the total income. The taxable income is decreased by the deduction that is permitted from gross total income. It implies that there will be a decrease in the income used to compute the tax rate. As a result, the individual's total tax liability is modest.
Q7. Which income is considered for calculating EBC total net or gross?
An annual gross income of Rs. 8 lakh is the total amount considered for EBC.
Q8. Is a surcharge determined on total income or on taxable income?
Both taxable and total income are not taken into account when calculating the surcharge. It is determined using income tax computed on taxable income according to the assessee's applicable rates.
Q9. How to calculate adjusted gross total income for 80G?
In India, in order to determine your Adjusted Gross Total Income (AGTI) for the purpose of claiming deductions under Section 80G:
Add together all of your sources of income to determine your Gross Total Income (GTI).
List the permissible deductions (apart from 80G), such as long-term capital gains, and those under sections 80C to 80U.
To determine your AGTI, deduct these deductions from your GTI.
AGTI = GTI - (deductions which do not include 80G)
Q10. Is gross income or net taxable income considered to calculate annual tax liability?
Net taxable income is what is used to calculate taxes on an annual basis. It is calculated by subtracting several deductions from the gross total revenue.
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