Important Differences Between Gross Total Income (GTI) and Total Income (TI)

Gross Total Income (GTI)

Gross Total Income (GTI) is the total income earned by an individual or entity from all sources before any deductions or exemptions are applied. It is calculated by adding up the income earned under each head of income as per the Income Tax Act, which are:

• Income from salary: This includes the salary and allowances received by the individual from an employer.
• Income from house property: This includes the rental income received by the individual from a property owned by them.
• Income from business or profession: This includes the profits earned by the individual from a business or profession.
• Income from capital gains: This includes the gains arising from the sale of capital assets such as shares, property, etc.
• Income from other sources: This includes income from any other source, such as interest earned from fixed deposits, winnings from lotteries, etc.

Once the income under each head is calculated, the next step is to apply the provisions of the Income Tax Act to determine the GTI. This includes clubbing of income, i.e. adding the income of another person to the taxpayer’s income, and setting off and carrying forward of losses incurred under one head of income against the income earned under another head of income.

The GTI is used as the base for computing the taxable income, which is the income on which the tax liability is calculated. The tax rate applicable to the taxable income will depend on the income tax slab in which the individual or entity falls.

Examples of Gross Total Income (GTI)

Here are some examples of Gross Total Income (GTI):

• A works as an employee in a company and earns a salary of Rs. 6 lakhs per year. He also has a house property from which he earns a rental income of Rs. 1 lakh per year. In addition, he earns interest income of Rs. 50,000 per year from his fixed deposits. Mr. A’s Gross Total Income (GTI) would be Rs. 7.5 lakhs (Rs. 6 lakhs salary + Rs. 1 lakh rental income + Rs. 50,000 interest income).
• B runs a small business of selling handmade crafts and earns a profit of Rs. 2.5 lakhs per year. She also has a capital gain of Rs. 1 lakh from selling shares of a company. Ms. B’s Gross Total Income (GTI) would be Rs. 3.5 lakhs (Rs. 2.5 lakhs business income + Rs. 1 lakh capital gain).
• C is retired and does not have any regular source of income. However, he has a fixed deposit which earns him an interest income of Rs. 1 lakh per year. In addition, he receives a pension of Rs. 3 lakhs per year. Mr. C’s Gross Total Income (GTI) would be Rs. 4 lakhs (Rs. 3 lakhs pension + Rs. 1 lakh interest income).

Types of Gross Total Income (GTI)

Gross Total Income (GTI) is the sum of the income earned under each head of income as per the Income Tax Act. There are five heads of income under which income can be earned, and each head of income contributes to the GTI. The five heads of income are:

• Income from Salary: This includes the salary and allowances received by an individual from their employer.
• Income from House Property: This includes the rental income earned by an individual from a house property owned by them.
• Income from Business or Profession: This includes the profits earned by an individual from a business or profession carried out by them.
• Income from Capital Gains: This includes the gains arising from the sale of capital assets such as shares, property, etc.
• Income from Other Sources: This includes income from any other source, such as interest earned from savings accounts, fixed deposits, dividends received, winnings from lotteries, etc.

Thus, the GTI can be classified into five types, based on the head of income that contributes to it. These are:

• Salary Income GTI: This is the GTI earned under the head of income from salary.
• House Property Income GTI: This is the GTI earned under the head of income from house property.
• Business or Profession Income GTI: This is the GTI earned under the head of income from business or profession.
• Capital Gains Income GTI: This is the GTI earned under the head of income from capital gains.
• Other Sources Income GTI: This is the GTI earned under the head of income from other sources.

Characteristics of Gross Total Income (GTI)

The characteristics of Gross Total Income (GTI) are:

• Sum of income from all sources: GTI is the sum of income earned by an individual from all sources, including salary, house property, business or profession, capital gains, and other sources.
• Basis for tax liability: GTI is used as the basis for calculating an individual’s tax liability, as it reflects their total income earned during the financial year.
• Includes clubbing of income: GTI takes into account the clubbing of income, which means that the income of certain persons, such as spouse or minor child, may be added to the income of the taxpayer.
• Includes set-off and carry forward of losses: GTI also includes the set-off and carry forward of losses incurred in a previous financial year, which can be used to reduce the tax liability.
• Computed before deductions: GTI is computed before applying deductions under various sections of the Income Tax Act, such as deductions for investments, expenses, or donations, which are used to reduce the taxable income and, therefore, the tax liability.
• Used for compliance: GTI is an important component of the compliance process, as taxpayers are required to report their GTI while filing their income tax returns and paying taxes.
• Influences eligibility for certain schemes: GTI also affects the eligibility of an individual for certain government schemes, benefits, or subsidies, which are determined based on the income bracket of the individual.

Elements of Gross Total Income (GTI)

The elements of Gross Total Income (GTI) are the various sources of income that are included in its calculation. The five main elements or heads of income that contribute to GTI are:

• Income from Salary: This includes the salary and allowances received by an individual from their employer.
• Income from House Property: This includes the rental income earned by an individual from a house property owned by them.
• Income from Business or Profession: This includes the profits earned by an individual from a business or profession carried out by them.
• Income from Capital Gains: This includes the gains arising from the sale of capital assets such as shares, property, etc.
• Income from Other Sources: This includes income from any other source, such as interest earned from savings accounts, fixed deposits, dividends received, winnings from lotteries, etc.

In addition to the above, GTI also includes the following:

• Clubbing of Income: This refers to the inclusion of income earned by certain persons, such as spouse or minor child, in the GTI of the taxpayer.
• Set-off and Carry Forward of Losses: This refers to the adjustment of losses incurred in a previous financial year against the income earned in the current year, which can be used to reduce the GTI and, therefore, the tax liability.

Steps to calculate Gross Total Income (GTI)

The steps to calculate Gross Total Income (GTI) are as follows:

Step 1. Calculate Income from Salary: Determine the total salary and allowances received by the taxpayer from their employer during the financial year.

Step 2. Calculate Income from House Property: Determine the income earned by the taxpayer from any house property they own, such as rental income.

Step 3. Calculate Income from Business or Profession: Determine the net profit or loss earned by the taxpayer from any business or profession carried out by them during the financial year.

Step 4. Calculate Income from Capital Gains: Determine the gains arising from the sale of any capital assets, such as shares, property, etc., during the financial year.

Step 5. Calculate Income from Other Sources: Determine any income earned from any other source, such as interest earned from savings accounts, fixed deposits, dividends received, winnings from lotteries, etc.

Step 6. Include Clubbing of Income: Include the income of certain persons, such as spouse or minor child, which may be added to the income of the taxpayer.

Step 7. Include Set-off and Carry Forward of Losses: Include any losses incurred in a previous financial year that can be adjusted against the income earned in the current year.

Once the GTI is calculated, deductions under various sections of the Income Tax Act can be claimed to arrive at the taxable income, which is used to calculate the tax liability of the taxpayer.

Total Income (TI)

Total Income (TI) refers to the income on which tax liability is calculated after considering all the deductions and exemptions available under the Income Tax Act. It is the final income figure that is used to determine the tax liability of an individual or entity.

The Total Income is arrived at by subtracting the deductions and exemptions available under various sections of the Income Tax Act from the Gross Total Income (GTI).

For example, if an individual has a GTI of Rs. 10 lakhs and they claim deductions of Rs. 1 lakh under Section 80C, the Total Income of the individual will be Rs. 9 lakhs (i.e. GTI – deductions).

TI is important because it is the basis on which the tax liability of an individual or entity is calculated. The tax slab rates for various income ranges are applied to the Total Income to arrive at the tax liability.

Examples of Total Income (TI)

Here are some examples of Total Income (TI):

• Let’s say Mr. X has a Gross Total Income (GTI) of Rs. 7 lakhs and he claims deductions of Rs. 1.5 lakhs under various sections of the Income Tax Act. In this case, the Total Income of Mr. X will be Rs. 5.5 lakhs (i.e. GTI – deductions).
• Suppose Mrs. Y earns a salary of Rs. 12 lakhs per annum and has invested Rs. 1 lakh in tax-saving instruments under Section 80C. She also owns a house property from which she earns a rental income of Rs. 2 lakhs per annum. In this case, her Gross Total Income (GTI) will be Rs. 13 lakhs (i.e. Salary + Rental Income). After claiming the deduction of Rs. 1 lakh under Section 80C, her Total Income will be Rs. 12 lakhs (i.e. GTI – deductions).
• Let’s assume Mr. Z earns a salary of Rs. 6 lakhs per annum and also has a long-term capital gain of Rs. 2 lakhs from the sale of shares. He also claims a deduction of Rs. 50,000 under Section 80D for health insurance premium. In this case, his Gross Total Income (GTI) will be Rs. 8 lakhs (i.e. Salary + Capital Gains). After claiming the deduction of Rs. 50,000 under Section 80D, his Total Income will be Rs. 7.5 lakhs (i.e. GTI – deductions).

Types of Total Income (TI)

There are different types of Total Income (TI) based on the source of income. Here are some types of Total Income:

1. Income from Salary: This type of Total Income is earned by individuals who are employed and receive a salary as their primary source of income. It includes basic salary, allowances, perquisites, and bonuses.
2. Income from House Property: This type of Total Income is earned by individuals who own a house property and receive rental income from it. It includes the rent received from the property after deducting the municipal taxes and the standard deduction of 30% of the annual value of the property.
3. Income from Business or Profession: This type of Total Income is earned by individuals who are self-employed or run a business. It includes the income generated from the business or profession after deducting the expenses incurred to earn the income.
4. Income from Capital Gains: This type of Total Income is earned by individuals who have made investments in capital assets like stocks, mutual funds, and property, and have sold them for a profit. It includes the gain realized from the sale of such assets after deducting the cost of acquisition and expenses incurred on the sale.
5. Income from Other Sources: This type of Total Income includes income earned from sources other than the above-mentioned categories, such as interest income from fixed deposits, savings account, and other investments.

Characteristics of Total Income (TI)

Here are some characteristics of Total Income (TI):

• Taxable Income: Total Income is the income on which an individual’s tax liability is calculated. It is the gross income earned during a financial year minus the deductions and exemptions allowed under the Income Tax Act. Thus, it is the taxable income of an individual.
• Computed Annually: Total Income is computed annually for a financial year starting from 1st April of a year and ending on 31st March of the subsequent year. It includes all income earned during this period.
• Determined by Various Sources: Total Income may include income from various sources like salary, business or profession, capital gains, house property, and other sources like interest income, dividends, etc.
• Used for Tax Calculation: The Total Income of an individual is used to calculate the tax liability. The tax rates and slabs vary based on the Total Income of an individual.
• Can be Reduced by Deductions and Exemptions: The Total Income of an individual can be reduced by various deductions and exemptions available under the Income Tax Act. This helps to reduce the tax liability of an individual.
• Needs to be Declared Accurately: It is important to declare the Total Income accurately while filing the income tax return. Any incorrect declaration or non-disclosure of income can lead to penalties and legal action by the Income Tax Department.
• Subject to Regular Amendments: The Total Income and the tax rates and slabs are subject to regular amendments by the government through the Union Budget. It is important to stay updated with the latest changes to avoid any compliance-related issues.

Steps to Calculate Total Income (TI)

Here are the steps to calculate Total Income (TI):

Step 1. Determine the Gross Total Income (GTI): Gross Total Income is the sum of income under each head of income, i.e., salary, house property, business or profession, capital gains, and other sources, after considering clubbing of income and set off and carry forward of losses.

Step 2. Claim Deductions: Deductions under Chapter VI-A of the Income Tax Act are allowed from the Gross Total Income. These deductions include contributions to Provident Fund, Public Provident Fund, Life Insurance Premiums, Equity Linked Saving Schemes, National Pension Scheme, etc.

Step 3. Claim Exemptions: There are certain income exemptions available under the Income Tax Act, such as exemptions on HRA, LTA, Leave encashment, gratuity, etc. These exemptions can be claimed from the Gross Total Income.

Step 4. Add any Other Income: Any income that is not included in the Gross Total Income, such as winnings from lotteries, horse races, etc., should be added to the Gross Total Income.

Step 5. Calculate Taxable Income: The taxable income is the Total Income on which tax liability is calculated. It is the Gross Total Income after deducting the deductions and exemptions and adding any other income.

Step 6. Calculate Tax Liability: Once the Total Income is calculated, the tax liability can be calculated based on the applicable tax rates and slabs. The tax rates and slabs are subject to change every year and are announced in the annual budget.

Step 7. Pay Taxes and File Returns: The tax liability should be paid before the due date and the income tax return should be filed accurately, reflecting the Total Income, deductions, exemptions, and taxes paid. Failure to pay taxes or file returns can attract penalties and legal action.

Important Difference Between Gross Total Income and Total Income

Here is a table outlining the important features and differences between Gross Total Income (GTI) and Total Income (TI):

Key Difference Between Gross Total Income and Total Income

Here are key differences between Gross Total Income (GTI) and Total Income (TI):

1. Conceptual Difference: GTI is the total income under each head of income before applying deductions and exemptions, while TI is the actual income on which tax is calculated after deductions and exemptions.
2. Calculation Method: GTI is calculated by summing up income under each head of income, while TI is calculated by subtracting deductions and exemptions from GTI and adding any other income.
3. Tax Liability: GTI is not used to calculate tax liability, while TI is used to calculate tax liability based on the applicable tax rates and slabs.
4. Importance in Tax Planning: GTI is important in tax planning as it allows for loss set-off and carry forward, while TI is important in tax planning as it allows for deductions and exemptions to reduce tax liability.
5. Legal Implications: Non-declaration of all sources of income can attract legal penalties for GTI, while incorrect declaration or non-disclosure of income can attract legal penalties for TI.
6. Reporting in Tax Returns: GTI is reported in the tax return, while TI is the final taxable income after considering deductions, exemptions, and other income.
7. Use in Financial Statements: GTI may be used in financial statements, while TI is not used in financial statements as it is specific to tax calculation.

Similarities Between Gross Total Income and Total Income

Although Gross Total Income (GTI) and Total Income (TI) differ in some ways, they do share some similarities:

1. Both are used in tax planning: GTI and TI are both used in tax planning to reduce tax liability. GTI is used to determine income under various heads, while TI is used to determine taxable income after deductions and exemptions.
2. Both are used in tax return filing: GTI and TI are both used in filing tax returns. GTI is used to report income under various heads, while TI is used to report the final taxable income.
3. Both include income from all sources: GTI and TI both include income from all sources, including salary, business income, capital gains, and other sources.
4. Both are used in determining the tax liability: While GTI is not used to calculate the tax liability, it is a crucial component in determining the tax liability. Similarly, TI is used to calculate the tax liability based on applicable tax rates and slabs.
5. Both can have legal implications: Non-disclosure or incorrect declaration of income can have legal implications for both GTI and TI.
6. Both are important for financial planning: Both GTI and TI are important in financial planning as they help individuals understand their income and plan their expenses accordingly.

Conclusion Between Gross Total Income and Total Income

In conclusion, Gross Total Income (GTI) and Total Income (TI) are both important concepts in income taxation. GTI refers to the sum of income under each head of income before applying deductions and exemptions, while TI is the actual income on which tax is calculated after deductions and exemptions. While there are some similarities between the two concepts, such as their use in tax planning and tax return filing, there are also important differences, such as their calculation method, legal implications, and use in financial statements. Both GTI and TI play a crucial role in determining an individual’s tax liability and financial planning.