[submitted as a partial fulfilment of the requirements for B.A. L.L. B (Hons.) 5-year integrated course] Session – 2024-2025 Submitted On: 20 September, 2024
Submitted by: Submitted to:
Miss. Naina Sharma Ms. Pooja Saxena Roll No.- 60 [Faculty] Semester: VII A
University Five Year Law College
University of Rajasthan Jaipur
0 DECLARATION I, Naina Sharma, hereby declare this project titled “Gross Total Income” is based on the original research work carried out by me under the guidance and supervision of Mrs. Pooja Saxena. The interpretations put forth are based on my reading and understanding of the original texts. The books, articles and websites etc. which have been relied upon by me have been duly acknowledged at the respective places in the text. For the present document which I am submitting to the university, no degree or diploma has been conferred on me before, either in this or any other university.
Date: 20 September 2024
MISS.NAINA SHARMA RollNo:60 Semester: VII A
1 ACKNOWLEDGEMENT I have written this project under the supervision of Ms. Pooja Saxena, Faculty, University Five Year Law College, University of Rajasthan, Jaipur. Her valuable suggestions herein have not only helped me immensely in making this work easier but also in developing an analytical approach in this work. I found no words to express my sense of gratitude for Director Dr. Akhil Kumar, Deputy Director Mr. Ghanshyam Bher and Mr. Sandeep Singh for constant encouragement at every step. I am extremely grateful to librarian and library staff of the college for the support and cooperation extended by them from time to time.
Miss. Naina Sharma
2 CERTIFICATE
Ms. Pooja Saxena Date: 20 September 2024
Faculty University Five Year Law College University Of Rajasthan, Jaipur
This is to certify that Miss. NAINA SHARMA of VII semester, section A of University Five Year Law College, University of Rajasthan, Jaipur has carried out the project entitled “Gross Total Income” under my supervision and guidance. it is an investigation report of a minor project. The students have completed research work in my stipulated time and according to norms prescribed for the purpose.
Supervisor
3 Table of Contents
SR NO. PARTICUAR PAGE NO.
1 Declaration 1
2 Acknowledgement 2
3 Certificate 3
4 Table of Contents 4
5 Abstract 5
6 Introduction 6
7 Chapter 1 –Components of 7 Gross Total Income 8 Chapter 2- Computation of 9 Gross Total Income 9 Chapter3 – Deductions 11
10 Conclusion 13
11 References 14
4 ABSTRACT
In This project titled “Gross Total Income” we have discussed from what do one understand by Gross total Income and what is its importance. The project overall is divided into 3 parts apart from introduction and conclusion, the first chapter focuses on Composition of Gross Total Income that it is compose of 5 heads, second chapter focuses on the computation of Gross total Income and common mistakes to avoid while computing it and third on the deductions that are to be made from Gross Total Income that makes the tax to be paid less. Overall, we try to understand from the very basic. At last, the conclusion will thoroughly be based upon my understanding and research and my opinion will be mentioned at the end.
5 INTRODUCTION As the name suggests, Gross Total Income is the aggregate of all the income earned by you during a specified period. Gross income for an individual also known as gross pay when it’s on a pay check, is an individual’s total earnings before taxes or other deductions. This includes income from all sources, not just employment, and is not limited to income received in cash; it also includes property or services received.
Gross income is the starting point in calculating an individual’s or business’ tax liability. Individuals calculate gross income by adding wages or salary, tips, dividends, interest, capital gains, income from rental properties, alimony, and pensions. Not all income is included in gross income for tax purposes, such as Social Security benefits or life insurance payouts.
Subtracting certain “above-the-line” deductions from gross income determines a taxpayer’s
adjusted gross income (AGI), which is important for determining state and federal income taxes.
Business gross income is gross revenue minus the cost of goods sold, or the costs related to producing goods or providing services. This can be calculated for the entire firm or per product and is the starting point for measuring a firm’s profitability.
A company calculates gross income to understand how the product-specific aspect of its business performed. By using gross income and limiting what expenses are included in the analysis, a company can better analyse what is driving success or failure. For example, if a company is interested in knowing how a specific product line is performing, it does not want to see the company's rent expense included in the performance as that is an unrelated, administrative expense.
6 CHAPTER 1 COMPONENTS OF GROSS TOTAL INCOME Gross Total Income (GTI) is the total income earned by an individual before any deductions or exemptions. It includes various components, which can vary based on the country's tax laws. Here’s a detailed breakdown of the common components of Gross Total Income:
1. Income from Salary
Basic Salary: The fixed amount paid by the employer. Allowances: Various allowances such as house rent allowance (HRA), dearness allowance (DA), travel allowance, etc. Bonuses: Any performance bonuses or year-end bonuses. Perquisites: Non-cash benefits provided by the employer, such as company car, housing facilities, etc.
2. Income from House Property
Rental Income: Earnings from renting out property. Self-occupied Property: While the rental income is considered, deductions may apply for interest on home loans.
3. Profits and Gains of Business or Profession
Business Income: Profits from a business operation. Professional Income: Earnings from professional services, such as fees for consultancy or freelance work.
4. Income from Capital Gains
Short-term Capital Gains: Profits from the sale of assets held for a short duration (typically less than a year). Long-term Capital Gains: Profits from the sale of assets held for a longer duration.
5. Income from Other Sources
Interest Income: Earnings from savings accounts, fixed deposits, bonds, etc. Dividends: Income from shares and investments in companies. Gifts and Lottery Winnings: Income received from certain gifts and winnings.
6. Agricultural Income (if applicable)
7 Income derived from agricultural activities, though in many jurisdictions, it may be exempt from tax.
7. Foreign Income Income earned from overseas sources, which may be taxable depending on the country’s tax treaties.
Considerations: Deductions and Exemptions: After calculating GTI, taxpayers can apply eligible deductions (like under sections 80C, 80D, etc., in India) to arrive at the Net Taxable Income. Tax Treatment: Different components may have different tax treatments, especially capital gains and certain allowances. 1
Understanding these components helps in accurately assessing one's tax liability and planning for tax-efficient strategies. Always consult a tax professional or financial advisor for personalized advice.
1 Corporatefinanceinstiture.com, https://corporatefinanceinstitute.com/resources/accounting/gross-income/, last visited on 11 September, 2024
8 CHAPTER 2 COMPUTATION OF GROSS TOTAL INCOME The computation of gross total income is vital because-
1) It is the amount required to be disclosed while filing an Income Tax Return.
2) Deductions under Chapter VI A are required to be deducted from GTI to arrive at the taxable or total income
Gross Total income is arrived at when your earnings from all these five heads of income are taken together. In other words, the aggregate of the incomes computed under the above 5 heads after setting off and carrying forward of losses and after applying clubbing provisions is known as Gross Total Income under section 80B (5).
Here’s the formula for calculating G.T.I. -
G.T.I. = Salary Income + House Property Income + Business/Profession Income + Capital
Gains + Other Sources Income + Clubbed Income - Set off of Losses.2
* Step-by-Step Calculation
1. Identify Income Sources: Gather all sources of income.
2. Calculate Individual Income Components: Determine the amounts for each source. 3. Sum Up All Income: Add together all the income components to get GTI.
Illustration –
Assume the following income sources for an individual for the financial year:
2 www.shiksha.com, https://www.shiksha.com/online-courses/articles/difference-between-gross-total-income- and-total-income/, last visited on 17 September, 2024
9 Income from Capital Gains 1) Short-term Capital Gains: Rs 3,000 2) Long-term Capital Gains: Rs 4,000
Total Salary=Basic Salary+ HRA+ Bonuses+ Perquisites =50,000+10,000+5,000+2,000 =67,000
Income from House Property:
Rental Income=12,000
Profits and Gains of Business:
Business Income=15,000
Income from Capital Gains:
Total Capital Gains=Short-term+ Long-term =3,000+4,000 =7,000
Income from Other Sources:
Total Other Income=Interest +Dividends =2,000+1,000 =3,000
Gross Total Income Calculation
Now, add all the components:
Gross Total Income (GTI)=Income from Salary+Income from House Property+Profits and G ains of Business+Income from Capital Gains+Income from Other Sources =67,000+12,000+15,000+7,000+3,000
=1,04,000
Common mistakes to avoid while calculating gross total income
1) Not including all income sources such as freelance work, rental income, or investment returns. 2) Mixing up gross total income with net income, which is after deductions and taxes. 3) Miscalculating eligible deductions or overlooking available deductions, such as those under Section 80C.
10 CHAPTER 3 DEDUCTIONS Deductions in tax refer to specific expenses or allowances that taxpayers can subtract from their total income to reduce their taxable income. This ultimately lowers the amount of income subject to taxation, which can lead to a lower overall tax bill. Here’s a breakdown of key deductions available:
Standard Deduction- A fixed deduction available to all taxpayers to simplify tax filing. In many jurisdictions, this is a set amount that reduces taxable income.
Deductions play a crucial role in calculating gross total income (GTI) and ultimately determining taxable income. Here are some common deductions available that can help reduce GTI:3
1. Deductions Under Section 80C
Eligible Investments: Contributions to Public Provident Fund (PPF), Employee
Provident Fund (EPF), National Savings Certificates (NSC), Equity Linked Savings Schemes (ELSS), and life insurance premiums. Limit: Up to ₹1.5 lakh per financial year.
2.Section 80D: Health Insurance Premiums
Who Can Claim: Premiums paid for health insurance for self, spouse, children, and parents. Limit: Up to ₹25,000 (or ₹50,000 for senior citizens) for self and family; an additional ₹25,000 (or ₹50,000 for senior citizens) for parents.4
3. Section 24(b): Home Loan Interest
Deduction on Interest: Interest paid on home loans can be deducted.
Limit: Up to ₹2 lakh per annum for a self-occupied property.
4. Section 80E: Education Loan Interest
Eligible Loans: Interest on loans taken for higher education.
Deduction: No upper limit; available for a maximum of 8 years.
5. Section 80G: Donations to Charitable Institutions
Eligible Donations: Contributions to specified charities and relief funds.
3 www.investopedia.com, https://www.investopedia.com/terms/g/grossincome.asp, last visited on 17 September,2024 4 www.investopedia.com, https://www.investopedia.com/terms/g/grossincome.asp, last visited on 17 September,2024
11 Limit: Varies based on the type of organization (50% or 100% of the donation amount).
6. Section 80TTA: Savings Account Interest
Deduction for Interest Income: Interest earned on savings accounts.
Limit: Up to ₹10,000 per year.
7. Section 80RRB: Royalty Income
Eligible for Authors: Royalties received for books published.
Limit: Up to ₹3 lakh per annum.
8. Section 80GG: Rent Paid
Eligibility: For individuals who do not receive House Rent Allowance (HRA). Deduction: The least of ₹2,000 per month, 25% of GTI, or actual rent paid minus 10% of GTI.
9. Section 80CCG: Equity Savings Scheme
Investment in Stocks: Investment in specified equity schemes.
Limit: 50% of the investment amount, subject to a maximum of ₹25,000.
10. Section 80U: Disability Deduction
For Individuals with Disabilities: For taxpayers with disabilities.
Limit: ₹75,000 for general disabilities; ₹1.25 lakh for severe disabilities.
11. Other Deductions
Professional Tax: Any professional tax paid can also be deducted from income. Interest on Education Loans: Additional deductions may be available under certain circumstances.
In the case of CIT VS H.M R. K NARAYANA, 2000 the court held that income from the sale of capital assets must be included in GTI, emphasizing that capital gains are a crucial part of gross income. 5 In the case of CIT VS S.M.S TELEGU,1981, court dealt with the interpretation of what constitutes "income" under the Income Tax Act. The court ruled that the term "income" is broad and includes all receipts unless specifically exempted. 6
5 Indiankanoon.org, https://indiankanoon.org/doc/1519118/, last visited on 20 September, 2024 6 Indiankanoon.org, https://indiankanoon.org/doc/1207718/, last visited on 20 September, 2024
12 CONCLUSION Gross Total Income (GTI) serves as a foundational concept in personal finance and taxation, representing the total income earned by an individual from various sources before any deductions. Understanding GTI is crucial for accurate tax reporting and effective financial planning. The aggregate of heads like salary, house property, capital gain, income from and profession and business and income from other sources is gross total income. Various deductions in GTI such as those under Sections 80C, 80D, and 24(b) can significantly reduce taxable income, thereby lowering overall tax liability. Effective tax planning involves strategically utilizing these deductions to optimize tax outcomes. Judicial interpretations through case laws highlight the importance of proper classification and reporting of income. These rulings reinforce taxpayers' responsibilities to accurately report income and understand the nuances of tax regulations. A clear understanding of GTI aids in budgeting, financial forecasting, and investment decisions. By knowing their total income, individuals can make informed decisions about savings, expenditures, and investments.
