Difference Between Gross Total Income and Total Income

Gross Total Income represents the total earnings you receive from all income sources before any deductions or exemptions are applied. In contrast, Total Income is the amount left after subtracting all allowable deductions and exemptions from your Gross Total Income.

Understanding this distinction is crucial for strategic financial management, as it impacts how your taxable income is calculated and how you plan your tax liabilities.

This blog will guide you through the clear differences between these two concepts, explain how each figure is computed, and highlight the role of deductions in managing your overall tax responsibility.

Gross Total Income vs. Total Income: At a Glance

Understanding the difference between Gross Total Income (GTI) and Total Income is essential for managing your finances and tax planning effectively. While GTI includes the sum of all income before any deductions, Total Income reflects the actual taxable amount after applying eligible deductions and exemptions. 

Here’s a quick overview of their key differences:

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Now that you have a quick overview, let’s explore each of these concepts in detail.

What is Gross Total Income? Features and Definition

Gross Total Income (GTI) refers to the total income earned by an individual or entity during a financial year before applying any deductions or exemptions. As defined in Section 14 of the Income Tax Act, 1961, GTI is a crucial figure because it serves as the starting point for determining taxable income and calculating tax liabilities.

GTI forms the basis for applying eligible deductions under various sections (e.g., Section 80C for investments in tax-saving instruments, Section 80D for insurance premiums). Accurately reporting your GTI ensures that the correct tax is assessed for the year, and any applicable deductions can be applied.

Income Sources Included in Gross Total Income

1. Salary: Income earned from employment. This includes basic salary, bonuses, and other allowances.
2. Business Profits: For self-employed individuals or business owners, profits from their business or profession are part of GTI.
3. Capital Gains: Income from the sale of capital assets like property or stocks. Depending on the holding period, these can be classified as short-term or long-term capital gains.
4. Rental Income: Income earned from renting out property or land is included in GTI.
5. Interest: Interest income from savings accounts, fixed deposits, bonds, etc.

Example of Gross Total Income

Let’s take an example to understand how GTI works:

Suppose Ravi is a salaried individual, and his earnings for the financial year are broken down as follows:

• Salary: ₹8,00,000
• Rental Income: ₹1,50,000 from property
• Interest Income: ₹50,000 from a fixed deposit

To calculate Ravi’s Gross Total Income (GTI):

• Salary = ₹8,00,000
• Rental Income = ₹1,50,000
• Interest Income = ₹50,000

So, Ravi’s GTI = ₹8,00,000 + ₹1,50,000 + ₹50,000 = ₹10,00,000.

This total of ₹10,00,000 is what Ravi reports as his GTI before applying any deductions, such as those under Section 80C for contributions to retirement funds, insurance premiums, or other eligible investments.

Example: Entrepreneur’s Gross Total Income

Now, consider an entrepreneur like Sneha, who owns a digital marketing agency. Her GTI for the financial year includes:

• Business Profits: ₹20,00,000
• Capital Gains: ₹3,00,000 from the sale of stock investments
• Interest Income: ₹1,00,000 from a savings account

To calculate Sneha's GTI:

• Business Profits = ₹20,00,000
• Capital Gains = ₹3,00,000
• Interest Income = ₹1,00,000

So, Sneha’s GTI = ₹20,00,000 + ₹3,00,000 + ₹1,00,000 = ₹24,00,000.

In this case, Sneha's GTI reflects a combination of income from her business, capital gains, and interest, providing a clear view of her total income for tax calculations.

Also read: Scope of Financial Management: Future Prospects and Career Opportunities

What are the Features of Gross Total Income?

Gross Total Income (GTI) encompasses the total income you earn from all sources before any deductions or exemptions are applied. It includes income from various streams such as salary, business profits, rental income, capital gains, and other taxable sources.

Key features of Gross Total Income include:

• Comprehensive Income Calculation: GTI accounts for every taxable earning without excluding any source, providing a complete picture of your total earnings.
• Pre-Deduction Figure: It is calculated before applying any deductions, exemptions, or allowances available under the tax laws.
• Basis for Tax Computation: GTI serves as the foundational figure upon which income tax liability is initially assessed.
• Excludes Tax-Saving Adjustments: It does not factor in tax-saving provisions like deductions under Section 80C, making it higher than taxable income.
• Determines Eligibility for Benefits: Knowing your GTI is important for assessing your eligibility for certain tax benefits, rebates, or slabs that depend on total income thresholds

Also read: Difference Between Auditing and Investigation: Key Objectives and Techniques

What is Total Income? Explained with Examples

Total Income refers to the income that remains after applying all eligible deductions, exemptions, and rebates to the gross total income (GTI). As defined in Section 2(45) of the Income Tax Act, 1961, this figure represents the actual income on which tax is calculated and serves as the foundation for determining an individual’s or entity’s tax liability for the financial year.

The process of calculating Total Income involves considering the following:

• Deductions: Amounts allowed under various sections of the Income Tax Act (e.g., Section 80C for investments, Section 80D for insurance premiums).
• Exemptions: Specific allowances that are not taxed, such as House Rent Allowance (HRA).
• Rebates: Tax reductions available to certain taxpayers, such as Section 87A for eligible individuals.

How is Total Income Calculated?

1. Start with Gross Total Income: Begin with the total income earned before deductions.
2. Apply Deductions: Deduct eligible amounts under various sections (e.g., 80C, 80D).
3. Consider Exemptions: Remove exemptions like HRA or other allowances.
4. Apply Rebates: If applicable, reduce tax further with rebates like Section 87A.

Example of Total Income

Let’s consider the following example to see how Total Income is calculated:

Example 1:

Suppose Amit has a gross total income (GTI) of ₹12,50,000, which includes his salary, rental income, and interest. He is eligible for the following deductions:

• ₹1,50,000 under Section 80C (for investments in tax-saving instruments like PPF, LIC premiums, etc.).
• ₹50,000 under Section 80D (for health insurance premiums).

To calculate Amit's total income:

• Gross Total Income = ₹12,50,000
• Deductions under 80C = ₹1,50,000
• Deductions under 80D = ₹50,000

So, Amit’s total income = ₹12,50,000 – ₹1,50,000 – ₹50,000 = ₹10,50,000.

This ₹10,50,000 is what will be used to calculate Amit’s tax liability for the year.

Example: Freelancer’s Total Income

Consider Riya, a freelancer, whose gross total income for the year is ₹18,00,000. Riya claims the following deductions:

• ₹1,50,000 under Section 80C (for contributions to retirement plans and investments in mutual funds).
• ₹25,000 under Section 80D (for her health insurance policy).
• ₹50,000 under Section 80E (for educational loan interest).

To calculate Riya’s total income:

• Gross Total Income = ₹18,00,000
• Deductions under 80C = ₹1,50,000
• Deductions under 80D = ₹25,000
• Deductions under 80E = ₹50,000

So, Riya’s total income = ₹18,00,000 – ₹1,50,000 – ₹25,000 – ₹50,000 = ₹16,75,000.

This ₹16,75,000 is her total income, and it is this amount that will be taxed.

What are the Features of Total Income?

Total Income is the amount that remains after all eligible deductions and exemptions have been applied to the Gross Total Income. It represents the actual taxable income on which the government calculates your tax liability.

Key features of Total Income include:

• Post-Deduction Calculation: Total Income is computed only after subtracting allowable deductions, exemptions, and rebates from the Gross Total Income.
• Taxable Income Figure: It reflects the income amount that is subject to taxation under prevailing laws, incorporating tax-saving measures.
• Foundation for Tax Assessment: Total Income forms the final base for determining the tax payable by an individual or entity.
• Inclusion of Rebates and Exemptions: It factors in applicable rebates, such as those under Section 87A, and exemptions granted under specific provisions of the tax code.
• Determines Tax Liability: The exact amount of tax owed depends on this figure, making it crucial for accurate tax filing and planning.

Also read: Corporate Tax: What is it & How It Works?

Key Differences Between Gross Total Income and Total Income

Both Gross Total Income and Total Income are two of the most important numerical terms in terms of determining your tax liability and consequently arriving at determining your taxable income at the end of the financial year. 

Let’s take a look at the key differences between gross total income and total income according to various differentiating factors:

Also read: Accounting Profit: What It Is, How to Calculate It, and Key Differences

Similarities Between Gross Total Income and Total Income

Since gross total income and total income are both part of your total income structure, there are various similarities between these two financial components in terms of income. Let’s highlight the similarities between these two:

Also read: What are the Functions of Financial Management

Deepen Your Understanding: GTI vs. Total Income with upGrad

The difference between Gross Total Income (GTI) and Total Income is essential for proper tax planning. Gross Total Income is the sum of all income sources before any deductions, exemptions, or rebates, while Total Income represents the amount remaining after applying these tax-saving provisions. Understanding this distinction helps you make informed decisions about your tax liabilities and eligibility for various benefits.

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Reference:
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