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.

Income Tax Act 1961, defines both the terms as follows:

Section 80B(5) of the IT Act defines Gross Total Income

• Includes 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 in 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.

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.

See the example below to understand how and where Gross Total Income and Total Income will reflect on your ITR:

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.

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

Income Tax Saving Schemes in India

After your gross total income, you still have the chance to reduce your tax liability for the year. Section 80C allows various investments and expenses you can account for reducing your total income.

Some of the prominent tax saving schemes under section 80C:

• Unit Linked Insurance Plans or ULIPs from life insurance companies. Offers life cover, goal protection and customizable portfolio of multiple equity and debt funds.
• Guaranteed Saving Schemes from life insurance companies. Provides guaranteed returns apart from life insurance and goal protection covers.
• Term Insurance Plans are pure protection insurance plans to safeguard your family’s financial future in case of your untimely demise
• Public Provident Fund or PPF accounts are safe investments for long-term goals.
• Sukanya Samriddhi Yojana or SSY is a great investment option dedicated to girl children. It is a great way to ensure wealth transfer to your girl child.
• Equity Linked Saving Schemes or ELSS are pure equity mutual funds which offer tax saving on your investments.
• National Pension Scheme or NPS which is a great retirement saving scheme. This investment, however, gets a lock-in till you reach 60, so is only useful for your goals at 60 or after.

These tax-saving options provide complete freedom from taxes. The maturity values and withdrawals from these schemes are also exempt. There are many other tax-saving schemes with taxable interest or maturity value. For example, National Saving Certificate (NSC), Five-Year Fixed Deposit, etc.