What is Total Income and How to Calculate It?
(Last Updated On: April 1, 2019)
Total Income (TI) or Gross Total Income (GTI) are the terms used interchangeably but differ in substance. Where Gross Total Income is calculated by summing up earnings received as per all five heads of income. Total income is arrived at after deducting from Gross Total Income deductions under Section 80C to 80U (namely, Chapter VI A deductions) under the Income Tax Act 1961. Which means GTI is a large component out of which on subtracting certain specified amount we can arrive at the TI.
Why the calculation of Total Income (TI) important under the Income Tax Act?
A question might come up in your mind that Why it is important to know total income?? The need to understand the concept of total income becomes vital because it directly impacts your tax payments. Tax is calculated on total income or net income of a person and not on Gross Total Income. If the computation of Total Income is made wrong i.e. either it is calculated higher than actual income or lower, following consequences shall follow
- In case TI has been calculated more than the actual amount. Then the tax would be calculated on such increased amount and you might end up paying higher taxes unnecessarily.
- The other side is even more distressing. Computing lower Total Income and resultantly paying lower income tax will be an open invite for tax notices, penalties & prosecution.
How Total Income is computed?
Total Income can be computed by
- Adding up earnings from all five heads of income
- Reducing from it allowable deductions under Section 80C to Section 80U of the Income Tax
The resultant amount is Total Income.
For better understanding, find below the tabular presentation of how to compute total income.
|1. Income from salaries|
|Income from salary
Income by way of allowances
Taxable value of perquisites
|Less: Deduction under Section 16|
|Income from salaries||xxxx|
|2. Income from house property|
|Adjusted net annual value
Less: Deduction under section 24
|Income from house property||xxxx|
|3. Profit and gains of business or profession|
|Net profit as per profit and loss account||xxx|
|Add:Amounts which are debited to P&l a/c but are not allowed as a deduction under the act||xxx|
|Less: Expenditure which are not debited to P&L a/c but are allowed as a deduction under the act||xxx|
|Less: Income which are credited to P&L a/c but are exempt under section 10||xxx|
|Add: Income which are not credited to P&L a/c but are taxable under this head||xxx|
|Profit and gains of business or profession||xxxx|
|4. Capital Gains|
|Amount of capital gains
Less: Amount exempt under sections 54, 54B,54D,54EC,54F, 54G, 54GA, 54GB, and 54H
|Income from Capital Gains||xxxx|
|5. Income from other sources|
Less: Deduction under section 57
|Income from other sources||xxxx|
|Total [i.e., (1) +(2) +(3) +(4) +(5)]||xxxx|
|Less: Adjustment on account of set-off and carry forward of losses||xxx|
|Gross total income||xxxx|
|Total Income or Net income||XXXX|
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