What is Gross total income and how to calculate?

When it comes to filing income tax returns in India, one of the most essential terms you’ll encounter is Gross Total Income (GTI). Whether you’re an individual, a startup, or a small business owner, understanding GTI can simplify your tax compliance and help you plan your finances better. In this blog, we’ll break down the concept, its components, and its calculation. 

What is Gross Total Income (GTI)?

Gross Total Income refers to the aggregate income earned by an individual or entity in a financial year, before any deductions under Chapter VI-A of the Income Tax Act, 1961. It includes income from all sources and acts as the base figure for computing taxable income.

Components of Gross Total Income

GTI comprises income from the following five heads:

1. Income from Salary:
   This includes basic salary, allowances, bonuses, commissions, and perquisites provided by the employer.

2. Income from House Property:
   Income earned from owning and letting out property is considered under this head. Even self-occupied properties have notional income in some cases.

3. Profits and Gains from Business or Profession:
   Entrepreneurs and professionals report income earned through their business activities or professional practice here.

4. Capital Gains:
   Income earned from the sale of capital assets such as real estate, stocks, or mutual funds falls under this category.

5. Income from Other Sources:
   This is a residual category and includes income like interest from savings accounts, fixed deposits, dividends, and winnings from lotteries.

How to Calculate Gross Total Income?

To calculate GTI, follow these steps:

1. Identify income under each head – Calculate income from salary, house property, business/profession, capital gains, and other sources.
2. Add exemptions and allowances – Include eligible exemptions like HRA, transport allowance, or standard deduction.
3. Aggregate the income – Add the total earnings from all heads to arrive at the Gross Total Income.

What is Total income or taxable income?

Total Income, often referred to as Taxable Income, is the amount of income on which a taxpayer is liable to pay income tax for a financial year. It is derived after subtracting eligible deductions under Chapter VI-A of the Income Tax Act, 1961, from the Gross Total Income (GTI).

Formula for Total Income:

Total Income = Gross Total Income (GTI) – Deductions (under Chapter VI-A)

Example of Total Income Calculation:

1. Gross Total Income (GTI): ₹10,00,000

   • Income from Salary: ₹8,00,000
   • Income from Other Sources: ₹2,00,000

2. Deductions (Chapter VI-A):

   • Section 80C (PPF/ELSS): ₹1,50,000
   • Section 80D (Health Insurance): ₹25,000
   • Total Deductions: ₹1,75,000

3. Total Income:
   GTI (₹10,00,000) – Deductions (₹1,75,000) = ₹8,25,000

This ₹8,25,000 becomes the Total Income, and tax is computed on this amount based on the applicable slab rates.

Difference between Gross total income and Total income

Aspect	Gross Total Income (GTI)	Total Income (Taxable Income)
Definition	Total income from all sources before applying any deductions.	Income remaining after deducting eligible deductions under Chapter VI-A from GTI.
Components	Includes income from five heads: salary, house property, business/profession, capital gains, and other sources.	Derived after subtracting deductions like Section 80C, 80D, etc., from GTI.
Formula	Sum of income from all heads of income.	GTI – Deductions under Chapter VI-A.
Purpose	Acts as the starting point for computing taxable income.	Used to determine the tax liability.
Deductions	No deductions are applied to GTI.	Includes deductions allowed under Chapter VI-A.
Tax Applicability	Not directly taxable.	Tax is computed on this amount.
Example	Income before deductions: ₹10,00,000.	After deductions (e.g., ₹1,50,000 under Section 80C): ₹8,50,000.

Conclusion

Gross Total Income is a cornerstone of the income tax computation process. By understanding its components and calculation, taxpayers can effectively manage their finances and ensure smooth tax compliance. Startups, MSMEs, and individuals alike should prioritize accurate GTI computation to benefit from all available tax deductions and exemptions.