GROSS TOTAL INCOME AND DEDUCTIONS
Written by: PRAGATI SINGH , LL.B. (3 YEAR) , SCHOOL OF LAW (LOVELY PROFESSIONAL UNIVERSITY)
Navigating the realm of income tax involves understanding two fundamental concepts - Gross Total Income (GTI) and deductions under various sections. GTI serves as the canvas upon which an individual's or entity's entire income is painted, while deductions under Section 80 of the Income Tax Act weave a tapestry of opportunities for taxpayers to reduce their taxable income. In this blog, we will unravel the meaning of Gross Total Income and delve into the significant deductions available under Sections 80C, 80CCC, 80CCD, 80D, 80E, 80G, 80GG, 80QQB, and 80U.
IMPORTANCE OF GTI –
Understanding GTI is foundational to effective tax planning and compliance. It not only provides a comprehensive overview of an individual's or business's financial health but also serves as the baseline for computing the tax liability. GTI forms the canvas on which deductions are applied, shaping the final portrait of taxable income.
GROSS TOTAL INCOME –
Gross Total Income is the aggregate of all incomes earned by an individual or a business before any deductions or exemptions. It encompasses various sources, including salary, business profits, capital gains, house property income, and income from other sources. GTI serves as the starting point for calculating the taxable income, forming the basis upon which deductions are applied.
The components of GTI include, but are not limited to:
Salary Components –
Basic salary, allowances, bonuses, perks, and other forms of remuneration earned through employment.
Business Income –
Profits generated from business activities after accounting for allowable business expenses.
Capital Gains –
Profits realized from the sale of capital assets, such as real estate, stocks, or mutual funds.
House Property Income –
Rental income from owned properties after adjusting for municipal taxes and standard deductions.
Income from other source –
Miscellaneous income, including interest income, dividends, gifts, lottery winnings, and other sources of revenue.
Tax deductions are the sum of money that can be reduced from the total taxable income. To get the net income of a taxpayer, the deduction amount is first included in the gross total income and then subtracted from it. It is a kind of concession received by the taxpayers from the income tax department.
Deductions under Section 80:
1. Section 80C:
One of the most widely used sections, it offers deductions for investments in instruments like Public Provident Fund (PPF), Employee Provident Fund (EPF), life insurance premiums, National Savings
Certificate (NSC), and more, up to a maximum limit of Rs. 1.5 lakh.
2. Section 80CCC:
Provides deductions for premiums paid for annuity plans of life insurance companies or for any contributions made to Pension Funds, subject to the overall limit under Section 80C.
3. Section 80CCD:
Offers deductions for contributions made to the National Pension System (NPS) by individuals and employers. It is divided into two parts - 80CCD (1) for individual contributions and 80CCD (2) for employer contributions.
4. Section 80D:
Allows deductions for premiums paid on health insurance policies for self, spouse, children, and parents. Additionally, deductions are available for preventive health check-ups.
5. Section 80E:
Provides deductions on interest paid on educational loans for higher studies. This deduction is available for a maximum of 8 years or until the interest is fully paid, whichever is earlier.
6. Section 80G:
Encourages charitable contributions by providing deductions for donations made to eligible charitable institutions and funds. The deduction is either 100% or 50%, depending on the type of institution and the fund.
7. Section 80GG:
Offers deductions for individuals who do not receive House Rent Allowance (HRA) but pay rent for accommodation. Certain conditions apply, and the deduction is subject to limits specified in the section.
8. Section 80QQB:
Provides deductions for royalty income received by authors of certain specified books. This deduction aims to promote the creation of literary works.
9. Section 80U:
Offers deductions for individuals with disabilities. The extent of the deduction depends on the severity of the disability.
Importance of Understanding GTI and Section 80:
Tax Planning: Knowledge of GTI and Section 80 enables individuals and businesses to plan their finances strategically, optimizing deductions and minimizing tax liabilities.
Encouraging Investments: The various deductions under Section 80 act as incentives for individuals to invest in specified avenues, fostering economic growth and financial inclusion.
Social Responsibility: Deductions for charitable contributions encourage individuals and businesses to contribute to social causes, creating a positive impact on society.
In the intricate landscape of income taxation, grasping the concepts of Gross Total Income and deductions under Section 80 is crucial for taxpayers. By leveraging these provisions intelligently, individuals and businesses can not only reduce their tax burden but also contribute to economic development and social welfare. As tax laws evolve, staying informed about these intricacies is key for all stakeholders in the financial ecosystem.
the symbiotic relationship between Gross Total Income (GTI) and deductions is the crux of effective tax planning and financial management. GTI serves as the canvas upon which the intricate tapestry of one's financial landscape is painted, encompassing earnings from various sources. Deductions, on the other hand, act as strategic tools, allowing individuals and businesses to sculpt their taxable income, thereby minimizing their tax liabilities. As we navigate the realm of income taxation .