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Taxable Income vs Gross Income ? what?s the difference

As you know, for filing your income tax return, various incomes need to be considered to eventually lead you to your final amount for tax payment. Two such incomes that we will look at are taxable income and gross income. Through the meaning of these incomes, you will be able to recognize the precise difference between both. 

Gross Income

Gross income, as the name suggests, is your total or aggregated income from all sources. It is the starting point from which your tax deductions, reductions and rebates are calculated. Gross income is not only your income from salary or profession, but it is your income from all possible income sources. Many times people confuse their gross income with their salary or wage earnings. However, the salary and earnings from your work do make up only the bulk of your total gross income; your gross income includes many more constituents. 

Being a self-employed individual or business owner, one should not mistake gross revenue for gross business income. Total business revenue minus the business expenses are the gross profit. Hence for business owners, gross income is the net business income. 

The income tax department has offered various incomes to be categorized as gross income. Take a look at the list below: 

  • Salary income
  • Pension income
  • Property income
  • Rent from leased out properties or commercial spaces
  • Business income
  • Professional income
  • Freelance income
  • Capital gains from the sale of property, shares or bonds
  • Interest income
  • Dividend income
  • Income from investments
  • Other sources such as lottery, horse racing, etc
  • Income from agricultural land or sale of produce
  • Gifts received from family members – direct blood relations or friends
  • Income share from a partnership firm
  • Consultation fees
  • Income from a share of Hindu Undivided Family
  • Income from royalty on patents and published work
  • Income from previous year

Taxable Income

Taxable income is your gross income minus the deductions, exemptions and rebates. To arrive at the taxable income, the income tax authorities have provided various deductions, exemptions and rebates for the taxpayer to encourage savings to boost the economy. As a taxpayer, it is imperative to make the most of all the deductions and exemptions offered by the Government. Even if you are self-employed and you own a small business, you can set off your income to your expenses for that particular year. Additionally, your profits and losses accrued on your investments can also be considered to calculate your taxable income finally. 

Take a look at some of the examples of tax exemption, tax deduction and tax rebate: 

Exemption

  • HRA- House Rent Allowance. 
  • Leave Travel Allowance- LTA, 
  • Any pension, gratuity, voluntary retirement scheme received in the assessment year. 
  • Any cash amount given for the purchase of perquisites that include laptops, mobile phones etc., is tax-exempt. 
  • Company accommodation in case of official travel is claimable and exempt from tax. 
  • Capital Gains under Section54, 54CE and 54F.

Deduction

  • Section 80 C: for investments such as Public Provident Fund, Equity-Linked Savings Scheme, Employee Provident Fund, National Savings Certificate and many more. 
  • Section 80 D: premium payment of medical insurance policies. 
  • Section 80 E: for interest repayment on your child’s education loan. 
  • Section 80G: deductions if you have made any donations.
  • Section 80TTA –deductions for interest earned on your savings bank account. 

Rebate

Under Section87A, you can claim a maximum rebate amount of Rs. 12,500 if your gross income is Rs. 5 lakhs for the financial year. 

With a comprehensive list of constituents for your gross income and taxable income, you can notice the difference immediately the next time you file your taxes. 

Disclaimer :ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. Please note, filing of tax related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. The content is solely for informational and educational purpose. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

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