Problems on Computation of Gross Total Income of an individual (excluding deductions U/S 80)
by The computation of Gross Total Income (GTI) is an important part of income tax calculation for an individual. It involves calculating income under the five heads of income and combining them after making the adjustments permitted under the Income Tax Act, 1961. Deductions available under Chapter VI A, such as deductions under Section 80C, 80D and other sections, are not considered while calculating Gross Total Income.
Meaning of Gross Total Income
Gross Total Income means the total income computed under the various heads of income before allowing deductions under Chapter VI A. The five heads of income are:
- Income from Salary
- Income from House Property
- Profits and Gains of Business or Profession
- Capital Gains
- Income from Other Sources
The income under each head is calculated separately according to the relevant provisions of the Income Tax Act. After adjusting eligible losses and setting off losses where permitted, the incomes are added together to determine the Gross Total Income.
General Steps for Computation:
The following steps are generally followed while solving problems relating to Gross Total Income:
Step 1: Classify the Incomes
All receipts and incomes given in the problem should first be classified under the appropriate head of income. For example, salary received from an employer is taxable under Income from Salary, while rental income from a house is taxable under Income from House Property.
Step 2: Calculate Income under Each Head
Income under every head should be calculated separately after considering the applicable exemptions, allowances and deductions available under that particular head. For example, while calculating salary income, the applicable standard deduction and eligible exemptions may be considered.
Step 3: Adjust Losses
Losses under one source or head may be adjusted against income from another source or head according to the provisions relating to set off and carry forward of losses. However, certain restrictions may apply.
Step 4: Add Income under All Heads
After calculating the income under all five heads and adjusting eligible losses, the resulting amounts are added together. The total amount is known as the Gross Total Income.
illustrative Problem
Mr. A provides the following information for the Previous Year:
| Particulars | Amount (₹) |
|---|---|
| Basic Salary | 6,00,000 |
| House Rent Allowance | 1,20,000 |
| Income from House Property | 80,000 |
| Profit from Business | 1,50,000 |
| Long Term Capital Gain | 50,000 |
| Bank Interest | 20,000 |
Assume that there are no exemptions or adjustments other than the information provided.
Computation of Gross Total Income:
| Particulars | Amount (₹) |
|---|---|
| Income from Salary | |
| Basic Salary | 6,00,000 |
| House Rent Allowance | 1,20,000 |
| Gross Salary | 7,20,000 |
| Less: Standard Deduction | (50,000) |
| Income from Salary | 6,70,000 |
| Income from House Property | 80,000 |
| Profits and Gains of Business | 1,50,000 |
| Capital Gains | 50,000 |
| Income from Other Sources | |
| Bank Interest | 20,000 |
| Gross Total Income | 9,70,000 |
Thus, the Gross Total Income of Mr. A is ₹9,70,000. Deductions under Chapter VI A have not been considered because the problem specifically excludes deductions under Section 80.
Important Points While Solving Problems:
While computing Gross Total Income, students should carefully identify whether a particular receipt is taxable, exempt or partially exempt. Fully exempt income should generally not be included in the computation of GTI. Income should always be classified under the correct head before calculation.
Expenses can be deducted only when they are allowed under the relevant head of income. Personal expenses are generally not allowed as deductions. Similarly, deductions under Sections 80C to 80U should not be deducted while calculating Gross Total Income. These deductions are considered only after GTI is calculated to arrive at the Total Income.