In India, the concept of “Total Income” is at the heart of the Income Tax Act, 1961. It forms the basis on which an individual, company, firm, or any other entity is taxed. Broadly speaking, total income means the aggregate income earned by a person during a financial year from all possible sources, minus any deductions and exemptions as prescribed by the law. Whether you’re salaried, self-employed, or earning from investments or property, all these income streams are grouped to compute your total income. It’s not just about how much money you earn, but where it comes from and how it’s treated under the law that determines what finally gets taxed. This income is computed for the period starting from April 1 to March 31 of the following year, known as the Previous Year.
Legal Framework: Sections Defining Total Income
The Indian Income Tax Act lays out the structure of total income under Section 5 to Section 14. Specifically, Section 5 deals with the Scope of Total Income, explaining how residents are taxed on their global income, while non-residents are taxed only on income received or deemed to be received in India. Section 14 divides total income under five heads — Income from Salaries (Section 15-17), Income from House Property (Section 22-27), Profits and Gains from Business or Profession (Section 28-44), Capital Gains (Section 45-55), and Income from Other Sources (Section 56-59). Further, Chapter VI-A (Section 80C to 80U) allows deductions which are subtracted from the gross total income to arrive at the total income liable for tax. These deductions may relate to investments, insurance premiums, medical expenses, etc., thereby reducing your tax burden significantly.
Simplifying the Concept: Bringing It All Together
Think of your total income like a fruit basket. Each type of income (salary, business profits, house rent, etc.) is a different fruit. The law tells you which fruits to include, which to peel (deduct), and which ones are too sour to count (exemptions). Once you’ve collected and sorted them all, what remains is your total income — the final weight of the basket. This is the figure that your income tax is calculated on. Knowing how to manage this basket wisely through legal deductions and exemptions can result in major savings during tax season. It’s not about paying less tax illegally, but about planning smartly within the framework of law.
Mnemonic to Remember the Heads of Income: “SHPCB”
To easily remember the five heads of income, use the mnemonic “S-H-P-C-B”:
- S – Salary
- H – House Property
- P – Profits and Gains of Business or Profession
- C – Capital Gains
- B – Income from Other Sources
