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
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
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:
|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$||4,00,000||3,21,600||Home Loan Interest, property tax, and standard deduction||78,880|
|Business & Profession||3,50,000||3,50,000|
|Other Sources (interest, lottery, Dividend)||30,000||30,000|
|Agricultural Income||50,000||50,000||Fully Exempt*||0|
|from Direct Blood Relations||1,00,000||1,00,000||Fully Exempt||0|
|from Others (friends & colleagues)||60,000||50,000||Exempt up to 50,000 in a financial year!||10,000|
|Income Share from Partnership Firm||1,50,000||1,50,000||Not taxable (Tax already paid by the firm)||0|
|Income Share from HUF||80,000||80,000||Not taxable (Tax already paid by the HUF)||0|
|Royalty Income on Patents / Published work||5,00,000||U/s 80QQB||5,00,000|
|The income of the Previous Year||28,20,000|
|Gross Total Income||Exempt (Rs)||Sum of Taxable Incomes||Total Income||Income (Rs)||Gross Total Income (minus deductions)|
|Deductions under Chapter VI-A||Add: Agricultural Income||15,68,880|
|Under Section 80C||1,50,000||Life Insurance premium & home loan repayment||Tax on Aggregate Income*||50,000||2,08,164|
|Under Section 80D||25,000||The health insurance premium paid||Deduct Tax on Agricultural Income||(2,500)|
|Under Section 80QQB||3,00,000||Deduction from royalty income||Net tax liability||2,05,664|
|Under other parts of Sec. 80||10,000||Donations & charitable contributions||Health and Education Cess||8,226|
Disclaimer: Table only provides an example of Gross Total Income and Total Income computation. You should refer to the rules for actual exemptions and deductions from various incomes.
Clarifications for Treatment of Different Incomes in the Estimate
1. House Property Income ($)
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:
2. Agricultural Income (*)
3. Gifts (!)
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:
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.
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