Total Income is an important term used in Income Tax Act at various places hence it is important to know the meaning of Total Income as per Income Tax Act.
Section 2 clause 45 defines the term Total Income as under:
“”total income” means the total amount of income referred to in section 5, computed in the manner laid down in this Act;”
Hence, we need to check section 5 to understand the meaning of Total Income under Income tax act. Section 5 of the Income Tax Act defines Total Income as under:
“total income of any previous year of a person who is a resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year; or
(c) accrues or arises to him outside India during such year:
Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.
(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.”
However, there is an exception to the definition wherein any income which is covered by section 10 of the Income Tax Act would not be considered in the calculation of Total Income and relevant extract of same is a under:
“In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included“
This Total Income needs to be applied at various places under Income tax Act. Some important applications of the definition of Total Income are as under:
1. Usage of total income to determine liability of filing Income tax return in India:
Definition of Total Income is used in section 139 of the Income Tax Act to determine if a person is required to File Income tax return or not. Relevant extract of the Provisions of Income Tax Act are as under:
“(1) Every person,-
(a) being a company or a firm; or
(b) being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax,
shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed20 form and verified in the prescribed manner and setting forth such other particulars as may be prescribed:”
Now the there is a proviso to section 139 of the Income tax Act wherein various items are not allowed to be adjusted form the Total Income determines above which is as under:
“Provided also that every person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year, without giving effect to the provisions of clause (38) of section 10 or section 10A or section 10B or section 10BA or section 54 or section 54B or section 54D or section 54EC or section 54F or section 54G or section 54GA or section 54GB or Chapter VI-A exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed:”
Thus, as per the above proviso deduction of Chapter VIA or deduction/ exemption under section 54, 54F etc from Capital gain and various other adjustments shall not be considered while calculating total Income.
2. Usage of Total Income for determining Residential status under section 6:
Recently there have been amendments in Section 6 of the Income Tax Act where now it talks about residential status based on total income in some cases.
Wherein if a person earns total income from India more than Rs. 15 lakh then he can be considered as deemed resident in India and also various other relaxations will not be available, hence it is important to know how to calculate Total Income.
For Eg: If a non-resident is partner in an Indian Partnership Firm and if he gets only profit out of the same then such profit will not be a part of his total income calculation in India as profit from Partnership Firm is exempt in section 10(2A) of the Income Tax Act.
There are various other provisions where the definition of Total Income could be useful under the Income Tax Act.
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