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Whether you like it or not, income tax filing is an annual exercise that you have to spare time for. Some people may find the activity tedious, while most others find it overwhelming because of jargons such as gross total income, total income, deductions, exemptions, rebate, etc., which can be perplexing.
However, if your annual earnings fall under taxable income slabs, then the tax have to be paid when they are due to avoid penalties. While some individuals take the assistance of tax consultants and chartered accountants to pay the tax and file tax returns, others prefer to do it themselves. Regardless of what category you belong in, it is important to know about the difference between gross total income and total income.
Before delving into the details, however, it is important to know that although you cannot avoid taxes, you can reduce your taxable income by investing in financial tools such as savings insurance and a long-term savings plan. These investments can not only save on tax* but also help build a corpus for the future. However, because investments cannot be rushed, it is important to invest at the beginning of the financial year instead of at its conclusion.
While gross total income and total income mean the same things literally, they have different meanings in legal terms. The gross total income is an aggregate of the amount that an individual has earned in a financial year. As incomes can be earned from varied sources, the Indian Income Tax Act (ITA) expects individuals to segregate their earnings under different income heads. Your gross total income is, therefore, an accumulation of incomes from:
In addition to the aforementioned, Section 80B (5) of the Income Tax Act, 1961 states that the gross total income includes the set-offs and profits garnered or losses endured in the preceding financial years. The total that you get by adding income from all these sources is termed as the gross total income.
Before understanding the computation of total income, it is important to know what is the definition of total income. Tax are not levied on the gross total income but the total income of an individual. Total income is the amount that is left from your gross total income after the deductions permitted under Chapter VI A of the Income tax Act. Your taxable income or your tax liability depends on this deducted figure. The deductions permitted include:
For the computation of total income, deduct the investments made under the aforementioned headers from the gross total income. The amount that you get after the deduction is the amount that will be subject to tax.
The Indian Income Tax Act, 1961 defines clauses for total income as follows:
We all like to exercise a conservative approach with tax payment, and the Government of India presents several opportunities to reduce your taxable income. These financial tools and savings insurance options not only help you save on your tax* but help you build a corpus for your future.
Tata AIA Life Insurance has a host of plans that stands true on both these financial aspirations of savings and protection. Some of the most popular tax-saving* instruments under Section 80C are:
There are several other financial tools aside from the aforementioned to help you build a robust financial portfolio. The maturity value, as well as the withdrawals made from investment in the aforementioned plans, are free from taxes.
In conclusion, while gross total income and total income are often used interchangeably, they mean different things when it comes to taxation. With efficient and preliminary tax planning, one can lower the taxable income.
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