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What Is Gross Total Income in Income Tax?

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Accountants help businesses keep correct and up-to-date financial records. Accountants are responsible for recording an industry’s everyday transactions and converting them into financial information such as income statements, balance sheets and cash flow statements. Accountants also perform periodic audits and generate ad-hoc management reports, among other things.

Did you know?

When computing gross total income, one must add up all of their earnings without excluding any tax-saving investments made under Sections 80C to 80U of the Income Tax Act of 1961.

What Do You Understand by Total Income/Gross Total Income?

The total of all your taxable income from the preceding year is your gross total income. It will also include any profit or loss carried forward from previous years and any income after adjusting for clubbing provisions.

The income we talked about above can be classified under these five headings, according to Section 14 of the Income Tax Act 1961-

  1. Earnings from Salaries
  2. Income from house properties
  3. Gains from Business and Profession
  4. Gains on capitalisation
  5. Other sources of income.

And your gross total income is calculated by adding your earnings from all five sources of income.

Apart from accumulating earnings from all five sources of income, you must also include the following to arrive at your gross total income

  • Income to be added in accordance with the Income Tax Act’s clubbing rules Adjustments for set off and carry forward of losses.
  • Unexplained Tax Credit received in cash or credit under section 68 of the Income Tax Act 1961. Which indicates you’ve received any amount for which you don’t have a suitable or valid explanation for where it came from. Your Gross Total Revenue includes these sources of income.
  • Unexplained Investments are those in which you have made investments but are unable to provide a satisfactory explanation for the source or have made inappropriate disclosures on your behalf.
  • Under Section 69A, assets such as money, jewellery, and other items for which the assessee has no valid explanation shall be added to the person’s gross total income.
  • According to Section 69B of the Income Tax Act 1961, any undisclosed or under-disclosed income is added to the gross total income. This refers to any income or assets that you have not recorded or disclosed at a lesser level than the actual amounts.

Also Read: Exempt Income Under Section 10 of Income Tax

The Distinction Between Total Income and Gross Total Income

Net income vs gross income-

  • Before deductions, taxes, and other expenses, gross income is the total of all income collected from providing services to clients.
  • On the other hand, net income is the profit attributable to a corporation or individual after all expenses have been deducted. Net income is derived by deducting all business expenses, such as taxes, advertising charges, interest costs, and any qualified deductions, such as professional and legal fees.
  • If the net income is positive, the business has made a profit; if it is negative, the business has lost money.
  • If the difference between gross profit and net profit is substantial, it indicates that the company has a lot of expenses. In this case, the company should analyse its spending to eliminate unnecessary costs and cut necessary costs.
  • Net income is the amount of money generated after state and federal taxes, social security taxes, health insurance, and other expenses have been deducted.

Look at the following formulas to see how they differ in basic terms:

TI = GTI – deductions under Section 80

Or

GTI = TI + Section 80 deductions

GTI or Gross Total Income is the sum of all revenue sources, whereas TI or Total Income is GTI minus deductions.

To compute TI, subtract the following deductions from GTI as per Section 80 in Chapter VI of the Income Tax Act.

  • 80C: This allows you to deduct up to ₹1.5 lakh in specific investments and expenses from your GTI.
  • Section 80CCD allows you to deduct up to ₹50,000 in NPS (National Pension System) contributions.
  • Section 80D allows you to deduct health premium of insurance for yourself and your parents up to ₹60,000.
  • Interest earned on a bank account is tax-free up to ₹10,000 under Section 80TTA.
  • On Form 80E, the interest charged on student loans is subtracted.
  • This section includes a housing rent reimbursement (HRA) exception for those whose incomes do not include an HRA component.
  • 80DDB: Depending on the patient’s age, certain disease expenses are subtracted up to ₹40,000 or ₹60,000.
  • If you’ve had a physical disability, you may qualify for the 80U discount. The reduction seems to be either ₹75,000 or ₹1.25 lakh, based on the intensity of the impediment.
  • Donations to authorised institutes are tax-deductible under Section 80G.

To summarise, you should be able to distinguish between the Gross Total Income and the Total Income at this point. Ensure you do not mix them up when you file your return the next time.

Types of Gross Total Income

Basically, there are 2 types of gross total income, which are as follows:

  • Gross Individual Income
  • Gross Business Income

Let’s discuss the types of gross total income in detail.

Gross Individual Income

Lenders and landlords evaluate an individual’s gross total income to decide whether they are creditworthy borrowers or renters. Before subtracting deductions to calculate the amount of tax payable, gross income is the starting point when submitting federal and state income taxes.

Earnings and wages, as well as other sources of income such as tips, investment income, rental income, royalties, inheritance, pensions, and interest, are all included in an individual’s gross salary on their tax returns. The result of subtracting above-the-line deductions in tax is adjusted gross income (AGI).

To arrive at a taxable income amount farther down the tax form, below-the-line deductions are removed from AGI. Taxable income might be significantly lower than gross income after taking into account any allowable deductions or exclusions. 

Example-

Assume John earns ₹100,000 per year from his financial management consulting services. John additionally receives ₹70,000 in rental income from his real estate properties, ₹10,000 in dividends from Company XYZ shares, and ₹5,000 in interest from his savings account. The following is a formula for calculating John’s earnings:

₹100,000 + ₹70,000 + ₹10,000 + ₹5,000 = ₹185000 is gross income

Gross Business Income

Gross income is a line item on a company’s income statement that is sometimes included. It’s calculated as gross revenue minus COGS if it’s not displayed.

Where: Gross Income = Gross Revenue COGS

COGS stands for Cost of Goods Sold.

Gross income is also known as gross margin. Also, there’s net profit margin, which would be a performance metric that’s better expressed as a percentage. A company’s gross income reveals how much revenue it has made on its goods or services after subtracting the direct costs of developing the product or delivering a service.

Also Read: Know About Clubbing of Income under Income Tax Act, 1961

Example-

Assume that ABC, a paint production company, had ₹1,300,000 in gross revenue and the following expenses:

Raw materials cost ₹150,000.

₹60,000 in supplies

Equipment costs ₹340,000.

₹150,000 in labour costs

₹100,000 for packaging and shipping

This is how the gross profit is calculated:

₹1300,000 − (₹150,000 + ₹60,000 + ₹340,000 + ₹150,000 + ₹100,000) = Gross Income

₹500,000 = (₹1,300,000) – (₹800,000)

Conclusion

Individuals’ gross total income is the amount of revenue they generate before deducting taxes. Salary, incentives, tips, hourly pay, rent, dividends from fixed-income securities, and savings bank account interest are all examples of income earned. People can earn money from several part-time, transient, or freelance jobs in the less conventional but rising “gig” economy. All of the money you make from such jobs will be added to your gross total income

It’s important to note that businesses have a different definition of gross revenue than individuals. Gross income, often called gross margin, is the profit from commodities minus the total of those things for a business. In a financial statement, gross margin is a line item.

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