TOTAL INCOME: WHAT IS IT, IMPORTANCE AND HOW TO CALCULATE IT - DUDAS - 2025

The total income is the sum of all money received by an individual or a company, including income from employment or service delivery, sales revenue, payments of pension, dividend income or other sources.

Therefore, it is the sum of a taxpayer's income, from all sources, calculated in accordance with the provisions of the income and corporate tax laws. It is sometimes known as total legal income.

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Certain sums must be deducted from this figure in order to obtain the taxpayer's taxable income.

Total income can be calculated to assess taxes, assess the net worth of a business, or determine the ability of a person or organization to make debt payments.

Total income or Total gross income are terms that are used interchangeably, but differ in substance.

Total gross income is calculated by adding all income received. On the other hand, the total income is obtained after deducting the deductions from the total gross income.

Sources of income

According to income tax laws, a person can have a total of five sources of income, which are:

Salary income

Salary income can be calculated using the TDS certificate on Form 16 issued by your employer. This should be done as follows:

Collect pay stubs for the financial year. Now all the emoluments are added, such as the base salary and all other allowances and reimbursements that are mentioned in the salary stubs.

Home ownership income

Income from home ownership consists primarily of rental income received from the occupation of the home.

In the event that the appraised has only one house and it is occupied by him, then he will also be asked to calculate his income from the property of the house, which will be zero in most cases.

The following points should be considered while calculating homeownership income. The gross annual value of the home is calculated as follows:

- Calculate the fair market value, which is the expected income of a similar property, and the municipal valuation, which is the valuation according to the municipal authorities. The higher value of the two will be taken. This higher value is called the expected rent.

- Compare the actual income received or receivable for the year with the expected income. The highest value will be the gross annual value of the home.

- Calculate the net annual value by deducting from the gross annual value the municipal taxes actually paid during the year.

Capital gains income

Calculating capital gains income involves some effort based on the number and complexity of transactions.

Generally speaking, short-term and long-term capital gains income from the sale of all capital assets is calculated.

Income from business or profession

Calculating the cumulative income that arises from business or free practice earnings could be a challenging task.

In case the commercial or professional firm is not large-scale and does not involve complex transactions, then the evaluated itself can calculate this income. However, in most cases, it is best to take the advice of a licensed accountant to do this.

For a simple business, the appraised can calculate his taxable business income as follows:

- Take as the base value the net profit mentioned in the account books.

- Subtract the expenses that are allowed, according to the provisions of the income tax laws.

Income from other sources

All income that cannot be classified under the income mentioned above will be considered income from other sources.

It usually consists of interest income, dividend income, donations, etc. These figures should be compiled by ranking all the credit entries in the savings account.

Interest income generally includes interest on fixed deposits, recurring deposits, savings accounts, bonds, obligations, etc.

Dividend income generally comes from mutual fund schemes in which the dividend option has been chosen, and from equity stocks.

Importance of calculating total income

The need to understand the concept of total income becomes vital because it directly affects the payment or not of taxes. The tax is calculated on the total income or net income of a person, and not on the total gross income.

If the calculation of total income is done incorrectly, that is, the result of the calculation is higher or lower than the real income, then the following consequences should be observed:

If the total income has been calculated resulting in an amount greater than the actual amount, then the tax would be calculated based on said increase, so you could end up paying unnecessarily higher taxes.

On the other hand, if calculating the total income results in a lower amount than the real one and, consequently, an income tax is paid lower than what should have been paid, this will be an open invitation to receive from of the tax entity: notifications, fines and even a prosecution.

How to calculate total income?

Total income is the gross income from all sources minus certain deductions, such as expenses, allowances, and aid.

The total income can be calculated by adding all the earnings obtained in the period and deducting from them all the deductions allowed by the laws that govern income tax. The resulting amount is the total income.

If you are married or in a civil partnership and are evaluated jointly, the income of the spouse or civil partner is included in the total income.

If dividends or interest are earned on deposits, the gross amounts from them should be used when calculating total income.

For dividends, this is the amount before deduction of the dividend withholding tax.

For deposit interest, this is the amount before deduction of deposit interest withholding tax.

If the total income received is less than the exemption limit, no income tax will be paid.

References

1. Business Dictionary (2019). Total income. Taken from: businessdictionary.com.
2. Revenue (2019). Exemption and marginal relief. Taken from: revenue.ie.
3. Quora (2019). What is a total income? Taken from: quora.com.
4. Economic Times (2019). How to compute your total taxable income. Taken from: economictimes.indiatimes.com.
5. The Free Dictionary (2019). Total income. Taken from: legal-dictionary.thefreedictionary.com.