Income is the earnings made by a person, or an employee, especially regularly, in exchange for work done by the employee as assigned by the employer. There are some slabs in the income which are taxable by the government, the tax is imposed on individuals, or entities, whereas, the tax that is imposed on companies is known as corporate tax.
Gross Total Income and Total Income are two most common types of income and yet people get confused between them.
Gross Total Income vs Total Income
The main difference between Gross Total Income and Total Income lies in their meanings, where the former i.e. Gross total income denotes the total earnings from all the heads of income, the latter i.e. Total income is the income that is obtained by subtracting the deductions under Section 80 from the GTI (Gross Total Income)
Gross Total Income is the total income earned by the individual, including income from all the heads. There are five heads of income such as income from property, income from salary, income from other sources, income from business or profession, and lastly, income from capital gains. These all incomes combined form the Gross total income of an individual or an entity/entities.
On the other hand, Total Income is achieved by subtracting the deductions under Section 80 from Gross Total Income.
Comparison Table Between Gross Total Income and Total Income (in Tabular Form)
| Parameter of Comparison | Gross Total Income | Total Income |
|---|---|---|
| Meaning | Refers to income earned by an individual, or an entity from all the heads, before taxes or, other deductions are implied. | Total income is the income estimated after deductions under section 80 from Gross Total income have been subtracted. |
| Represents | Represents revenue generated, or income earned before the taxes and other deductions have been made. | On the other hand, total income represents the income on which tax liability is determined. |
| Importance | It is the aggregate of the incomes earned by all the heads, it denotes the deductions that are to be made. | Whereas, in the case of total income, it is necessary to calculate total income to ascertain an individual’s tax liability as per his, or her income. |
| Formula | Gross total income = Total income (sum of all heads) + the deductions under Section 80 from Gross Total Income. | Total Income = Gross Total Income – Deductions under Section 80 from Gross Total Income. |
| Tax | Tax is not levied on gross total income. | Tax is levied on the total income. |
What is Gross Total Income?
Gross total income is the summation of income from all the heads, it is commonly earned by an individual through paychecks before tax and other deductions. It is only after clubbing of income, that the set-off and carry forward of losses take place.
Important calculations to be made to achieve gross total income are:
- Identification of residential status such as resident, or non-resident which is again sub-categorized into resident and ordinarily resident, or resident but non-ordinarily resident.
- Income classification: It determines which income belongs to which group.
- Calculation of income from each head.
- Clubbing of income: Clubbing of income is done to prevent the avoidance of tax, under clubbing the income of minors, as well as the spouse of the assessor, is added to the total income.
- Set-off or carry forward of losses: There may be losses incurred under one head which is set-off against profit from some other source, under the same head.
What is Total Income?
Total income is the income, or earnings derived after subtracting the deductions under section 80C to 80U. To reach total income one has to obtain a gross total income of the assessee (the person who is liable to pay tax).
Important calculations to be made to achieve total income are:
- Deductions from the gross total income: Only after the calculation of the gross total income of the assessee, the deductions under section 80 that are allowed from the gross total income. The deductions are only made if the gross total income is of positive figure. Moreover, there are certain provisions under which deductions are made, namely, deductions concerning investments such as life insurance, deductions concerning certain incomes such as earnings from cooperative society, and other deductions.
- Rebate, if any
- Advance tax, as well as TDS
Main Differences Between Gross Total Income and Total Income
- Gross total income and total income are of distinct meanings, where the former denotes the sum of the incomes from the heads, or sources of income, while the latter denotes the total income after subtracting the deductions according to Section 80 of gross total income.
- Deductions are not made while calculating gross total income, whereas, on the other hand, deductions play an important role while calculating total income, as it is the only difference between gross total income and total income.
- Tax is levied on total income, whereas in the case of total income it is not levied.
- Gross total income is the aggregate income of all the incomes from distinct heads, or sources, while on the other hand, total income is the income that we obtain after deductions under section 80C to 80U.
- The tax liability is calculated based on total income, and not gross total income.
Conclusion
Both gross total income and total income play an important role when it comes to income tax. Although gross total income and total income are two commonly used terms they are easily confused and wrongly used interchangeably. Gross total income is the summation of all the incomes earned under all heads, or sources of income.
Whereas, on the other hand, Total Income is the earnings achieved after subtracting deductions laid under Section 80 from gross total income. One factor that makes total income very important is that the tax is always levied from total income and not on gross total income.
References
- https://apps.bea.gov/scb/pdf/2001/11november/1101pi_agi.pdf
- https://arxiv.org/pdf/cond-mat/0205520